1

MobileMonday Indonesia Launch

JW Marriott, Jakarta, December 3rd, 2007

Bruno Bensaid,

MobileMonday Shanghai Chapter Founder

The Changing Rules of the Game in the China Mobile Value-Added Services Market

Foreword: MobileMonday in Shanghai

Foreword: MobileMonday in Shanghai

� Launched in Oct 2006 by three seasoned executives of the mobile, internet and advertising industry bringing a new vision of converged services.

� Pioneering sponsors (Finnish Agency for Technology and Innovation, Nokia, etc) and advisory board

� +2000-member community, growing 100/month.

� Holding monthly events in the heart of Shanghai.

� Visibility across China through tight partnership with Mobilemonday Beijing team

� www.mobilemondayshanghai.net

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The China Mobile Environment

Unique Size, Unique Rules, between Tradition and Modernity

Highly Regulated Market

� All fixed and mobile telecom operators are state-owned (though shares floating in Hong-Kong or NY). GSM prevailing over CDMA (less than 5% subs).

� Telecom sector gradually opening under WTO commitments. To date, foreign telecom operators cannot operate services, and Foreign Internet Service/Content Providers (ISP/ICP) cannot hold more than 49% of local ISP/ICP.

� 3G licenses have not been granted yet. Home grown TD-SCDMA standard expected to prevail, on top of existing GSM and CDMA networks.

� Mobile ARPU is about 1/4 of Europe’s average (€8 vs. €32)

But mind-boggling figures

� 523 million subscribers (September 2007), +18% YOY (MII)

� 39.9% Penetration, but coastal cities dominate (Beijing 101.6%, Shanghai 96.2% penetration) - MII

� 371 million fixed telecom subscribers (28.3% penetration)

� Average 50 Bil SMS sent per month!!!! Sept 2007, 52.65 billion SMS sent, averaging 3.38 SMS / subscriber / day!!! (423 Bil SMS sent in 2006).

� Total MVAS market 59.6 billion RMB (EUR 5.5 Bil) in 2006 (Analysis), and EUR 3.3 Bil in H1’07 (+45% YOY). 2006 WAP revenue 7.4 billion RMB (EUR 0.7 Bil) - CNNIC

A Regulator’s nightmare? the CDMA anomaly

In large cities, such as Shanghai, Beijing, Guangzhou, Shenzhen,penetration has reached over 100%. Subscribers growth is now occurring in 2-tier and 3-tier cities as well as rural townships.

Mobile Traffic and MVAS steady growth*

* Source China Mobile

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Manufacturing for local and export markets

Strong Exports, but a fragmented and weak local industry

China Ships 50% of total World phones

� Q2’07, China Mobile phone shipments reached 132.2 million units, + 23.1% YOY.

� H1’07 shipments topped 253.8 million units +25.6% YOY

� China-only combined shipments reached 34.85 million for combined GSM and CDMA handsets (Q2’07).

� Nokia and Motorola top two vendors (source: Analysis).

� For CDMA models alone, Samsung and China-based Huawei Technologies were the top two vendors with market shares of 24.1% and 18.4% respectively (Analysys).

� Over 80 brands of phones, and 6000 phone models

Source: Digitimes

China Mobile Phone Market - 2007

1.6% Haier (Chinese)

1.8% Konka (Chinese)

3.0% LG Electronics

3.3% Amoi (Chinese)

4.6% Ningbo Bird (Chinese)

5.5% Sony Ericsson

6.7% Lenovo (Chinese)

10.8% Samsung

18.5% Motorola

29.5% Nokia

Share Company

Handset vendor shipment share, 2Q07

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Mobile Applications and Operators’ Policies

A Glossy Picture of Growth, but the Ecosystem is shrinking

MVAS experiencing a cold front since 2005

� High Capital requirements (RMB 10 Mil ~ EUR 0.9 Mil) to operate a national internet or mobile content service).

� Obligation to sign with every provincial operator (instead of one “hub”) – (2005)

� Ministry of Information Industry (MII), China Mobile and China Unicom enforcing double confirmation rule (2006)

� China Mobile enforcing mandatory “Monternet” landing page for all SPs, including free wap SPs (2007) to curb off-deck usage.

MVAS experiencing a cold front since 2005

� China Mobile taking control of more and more services (mobile IM, Mobile Music, Mobile gaming, Mobile blogging, Mobile news aggregator), with great promotion and successes.

� China Mobile / Unicom cancelling flat-rate GPRS packages.

� Next generation networks not ready (no 3G licenses yet)

� As a result, ~ 300,000 jobs were obliterated from the Industry between 2005 and 2007, and large mobile SPs market capitalization went down the drain, SPswere acquired or merged to survive (Hurray for ex.)

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Mobile gaming still sees obstacles and is waiting for 3G to take off

717

513373

279229187

18.4%22.0%

37.6%33.7%

39.6%

0

200

400

600

800

2006 2007F 2008F 2009F 2010F 2011F

0%

10%

20%

30%

40%

Market Size Annual Growth Rate

USD Million

Mobile Gaming Market Size and Forecast

Source: BDA forecast and analysis

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China Mobile preparing a new platform for mobile gaming business

9594106

140123

92

0

50

100

150

2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1

CMCC launched “Game Recommendation Zone”under Baibaoxiang in May

CMCC issued strict regulations on SPsin July

CM added validation codes for game downloading in September to prevent SPsfrom fraud billing

RMB Million

China Mobile’s Baibaoxiang Quarterly Sales Revenue

Source: China Mobile, BDA

14

17

22

5

11

27.7%23.1%28.7%

107.2%

0%

20%

40%

60%

80%

100%

120%

Feb-07 Mar-07 Apr-07 May-07 Jun-07

0

5

10

15

20

25

User base Growth rate

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China Mobile’s M.Music Club subscribers grew sharply in Q2 2007

M.Music Club VIP Users

Million

Source: China Mobile, BDA

Service

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China Mobile “Mobile Newspaper” and “Mobile IM”service Fetion saw rapid growth in 1H due to

aggressive promotion

3

7

911

15

0

5

10

15

20

Feb 07 Mar 07 Apr 07 May 07 Jun 07

Mobile Newspaper Paid Users

Million

Source: China Mobile, BDA

2 4 6 710

1521

29

38

9

Feb 07 Mar 07 Apri 07 May 07 Jun 07

Active Users Regesitered Users

User Base of Fetion

(million)

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WAP market dropped significantly after China Mobile launched new WAP regulation on May 17th 2007

9.8 10.3

8.19.2

5.24.2

5.6 5.7

4.1

5.3

2.11.5

0

2

4

6

8

10

12

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07

Kongzhong Sohu

168.3 168.8

101.0

78.5

0

50

100

150

200

Mar-07 Apr-07 May-07 Jun-07

Total WAP Revenues of SPs with Nationwide WAP Service License

RMB million

Kongzhong and Sohu’s Monthly WAP Revenues

RMB million

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China Mobile’s regulations on pre-installed MVAS applications increasingly stricter since 2005

Timeline of China Mobile’s Regulations on MVAS Links Pre-installed in Handsets

2005

Key Milestones

2006 2007 2008

China Mobile prohibited SPs from cooperating with handset makers in handset built-in applications

China Mobile finished transferring SPs’services to MISC platform

China Mobile punished 11 SPs for MVAS links pre-installed in handsets

China Mobile reiterated the regulation prohibiting MVAS links pre-installed in handsets

China Mobile announced it would deduct credits from SPswhich pre-installed MVAS links in handsets

2003 …

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Unicom increased investment on mobile music launching full track music download service

• June 2007, China Unicom launched commercial trials for full track music download “Xuan Qu”.

• China Unicom has reportedly signed contract with over 23 record companies including Warner Music and Sony BMG, and can access the copyright of over 80,000 songs, covering over 90% of China’s record market.

• Motorola K2 is the first handset to support Xuan Quservice, followed by Nokia and Sony Ericsson.

• In June too, China Unicom released “unlimited” wireless internet traffic package in Beijing for its CDMA users.

Source: China Unicom, BDA analysis

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Mobile TV in China

The China dilemma

Immature Technology & great confusion

• Very Few licenses granted so far, amidst political feud between SARFT and MII.

• Standards confusion:

• In Europe and Asia, an industry group that includes Nokia has been championing DVB-H.

• South Korea supports two standards, T-DMB and S-DMB. US-based Qualcomm backs MediaFlo.

• The State Administration of Radio (SARFT) is pushing CMMB.

• A group backed by Tsinghua University is promoting DMB-T/H

• There are also other mobile television standards seeking approval from the Standardisation Committee, including TMMB, and IMMB, submitted jointly by CITIC & i-Vision and another one called CDMB.

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China Mobile has strengthened its streaming mobile TV services through its new partnership with CRI

Source: China Mobile, CRI, BDA and analysis

� On August 30, China Mobile and CRI (China Radio International) jointly announced the launch of commercial streaming mobile TV services over China Mobile’s GPRS networks.

� CRI provides mobile video content, such as live TV channels and video clips, to China Mobile’s Monternet platform.

� CRI obtained the mobile TV license from SARFT in December 2006, and has established a subsidy Guoshi TV (GTV) in charge of mobile TV operation.

� Currently, CRI mobile TV charges no service fee, but mobile subscribers need to pay GPRS data traffic fee.

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China Internet Market

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Growth of Internet Usage in China is strong

Source: CNNIC

Internet Users in China reached 172 Mil in Sept 2007

Million

0.62 1.18 2.1 48.9

16.922.5

26.533.7

45.8

59.168

79.587

94103

111

123

137

162

90%

78%

90%

123%

90%

33%

18%

27%

36%29%

15% 17%

9% 8% 10% 8%11% 11%

18%

0

20

40

60

80

100

120

140

160

180

1997 Jun-

98

1998 Jun-

99

1999 Jun-

00

2000 Jun-

01

2001 Jun-

02

2002 Jun-

03

2003 Jun-

04

2004 Jun-

05

2005 Jun-

06

2006 7-Jun

0%

20%

40%

60%

80%

100%

120%

140%

Internte user Growth rate

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Both broadband and wireless internet have become major internet access platforms

29 31 30 29 29 2714

52 52 50 51 4839

32

6 6 6

3143 53 64 77 91

108

1744

0

20

40

60

80

100

120

140

160

180

200

Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 7-Jun

Dedicated Line Dial up ISDN Broadband Mobile handset

Internet Users By Different Types of AccessMillion

Source: CNNIC

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Mainstream Internet Application Usage (July 2007)

Source: CNNIC

3.9%

4.3%

14.1%

15.2%

19.1%

20.9%

24.0%

25.5%

47.0%

55.4%

61.1%

68.5%

69.8%

74.8%

77.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Online Reservation

Online Marketing

Onlne Stock

Online Recruiting

Blog

Online Banking

Online Education

Online Shopping

Online Game

Email

Online Video

Online Music

IM

Search Engine

Online News

News, Search, IM, Music, Video dominate usage

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Converged services opportunities:

The China Internet Advertising Market

TV

Outdoor

Radio

Others

Out-of-home displays

Wireless

Cable

Search

Internet

Magazines

Newspaper

Internet & Search only 4.3% of total “publisher” intake

China Advertising Revenue US$ 25.8Bil in 2007

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

2002 2003 2004 2005 2006 2007F 2008F

Online advertising Search

China Internet advertising and search revenues

Units: US$ millions

Note: Excludes agency fees

Source: SBCI, Company reports

Mobile Web (wap) Market

The Mobile advertising Market in China

� 69% of Chinese youth use social networking sites

� Chinese youth have 37 “net” friends vs 18 in the US

Source: Microsoft/MTV Circuits of Cool Project 2006/2007 (Millward Brown Sadek Wynberg OTX)

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10

20

30

40

50

60

70

80

90

US China

Close friends Friends, but not close Online friends, never met in person

Opportunity: Communities, Social Networks

Online advertising spend in 2007 will hit US$1.17bn (4.3% of total Ad Budget in China)

Online communities capture less than 5% of this advertising revenue

Note: Excludes agency fees

Source: SBCI, GroupM, Company reports, National Bureau of Statistics of China, Zenith Optimedia

Online and Mobile Communities are untapped opportunities

China Mobile IM and Social Networking Market

*Source: China Internet Network Information Center

�China IM market is dominated by Tencent’s QQ (84.4%) and MSN (13.9%). A host of other IM clients are alsopromoted by China Internet portals (Sina, Sohu, Neteaseetc), online gaming actors (Shanda etc), B2B players likeAlibaba or foreign players such as Yahoo or Google.

� In the workplace, MSN can be dominant, especially in wealthiest cities and with high-worth users (over 55% market share).

�47.6% of users only use text when using IM. 22.9% frequently use voice. 20.4% frequently use video chat.

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Conclusion

Summary & Conclusion

� Solid Operator revenue and growth, but a weaker ecosystem, due to constraining regulations and the creation of new walled gardens and operator-branded services.

� We are shifting away from the Japan DoCoMo model and moving towards Korea’s operator controlled model. Could be a significant opportunity for mobile advertising industry.

� Yet, more competition (new 3G licenses and higher investment cap thanks to WTO compliance) will likely bring new sets of rules to the game. MVNO will likely start too.

� Expect more significant changes in 2009-2010, but no Olympics effect, except – maybe - on mobile marketing/ad.

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Thank You!

Bruno Bensaid -布鲁诺 - bruno@mobilemondayshanghai.net

www.mobilemondayshanghai.net