Mobile Internet comes to China

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China Mobile Communications Corp., the largest wireless operator in China, recently announced plans to create a wireless Internet setup much like NTT DoCoMo’s i-mode service in Japan, but the company faces some significant challenges due to a cash-strapped population, cloudy government regulations and network constraints.

China Mobile is calling its setup the Monternet-a syllabic combination of mobile and Internet-which will be a revenue-sharing business model aimed at creating more value-added mobile data services. The service will work on the WAP protocol and will use a variety of technologies, including Short Message Service. The company said it plans to establish a wide variety of partnerships with Internet content and service providers to develop wireless applications. The plan is much like DoCoMo’s model, which allows content and service providers to directly benefit from the traffic they generate while the carrier enjoys the additional airtime usage.

I-mode has been wildly successful in Japan, garnering about 20 million wireless Internet users. But while the wireless Internet is becoming commonplace in Japan, in China it’s almost unheard of.

According to research organization Taylor Nelson Sofres, China has the lowest mobile Internet usage of any country in the Asia-Pacific region. Sixty-two percent of Japanese mobile-phone users access the Internet using WAP-enabled phones, while only 2 percent access the Internet in China. The average usage for the region, mainly driven by Japan, is 34 percent.

And, according to Pyramid Research, only 6 percent of the Chinese population use mobile devices, and less than 1 percent of those access the wireless Internet. On the flip side, about half of the Japanese population use mobile phones and, of that number, 10 percent enjoy wireless Internet access.

Most estimates put China Mobile’s subscriber base at about 100 million, and the company commands about 80 percent of the country’s wireless market. However, only a fraction of China Mobile’s subscribers use the company’s wireless data capabilities, so China Mobile’s challenge is to entice its customers and potential customers to upgrade to the Monternet service.

“The potential for Monternet is huge,” said Connie Hsu, manager of the Asia-Pacific region for Pyramid Research. “China’s large and growing demand market, as well as the lack of competition, provides Monternet with significant opportunities to grow.”

Hsu noted that the market penetration is so low in China that the only way to go is up. However, the opportunities for that growth are hindered by a variety of problems.

First, and perhaps most important, China’s austere government has so far been less-than-enthusiastic about the potential of the Internet. The ubiquity of the Internet played a large part in the government’s recent crackdown on the Falun Gong religious movement-members were orchestrating their actions through Web sites and e-mails-and the mobile Internet also may fall under the same types of government censorship.

“In a controlled market such as China’s, it will be difficult to see a proliferation of applications on the scale of Japan’s,” Hsu noted from Hong Kong. “As it stands in China, the lack of clear-cut regulation governing value-added service providers means that the growth in this area will be restricted in the near term.”

In addition, Hsu said since China Mobile is the incumbent operator, it is basically tied to the government’s telecommunications regulator. However, that close relationship provides the company with a large amount of clout, which could allow it to continue to raise the nation’s telecommunications objectives. These objectives, according to Hsu, are a major part of the government’s national development plan.

“As long as the government chooses to strictly regulate the Internet environment and/or allow this area to remain murky as to what is and is not allowed, we are going to see slow growth,” Hsu commented.

Government regulation will most likely come into play when China Mobile attempts to open the Monternet up to content and service providers. The question is, will the service be as open as DoCoMo’s i-mode, which many attribute as the root of its success?

The answer is unclear.

Besides the governmental aspect, China Mobile also has a variety of other concerns that it must meet. The Chinese population doesn’t have the kind of disposable income that people in Japan do, which could be a major barrier to the Monternet. Also, Hsu said China Mobile has so far been unable to market its offerings in a way that would generate interest in the Monternet.

“China Mobile has a long way to go in terms of being market savvy. It needs to improve on marketing and promoting its services. Not only will it attract more subscribers to use value-added services, including Internet types of services, but it will also help (educate) customers on the benefits of these services. China Mobile itself will need to be proactive in this area and it has been slow to do this.”

One more difference between i-mode and the Monternet is the carriers’ respective networks. DoCoMo enjoys a packet-based network, while-like most of the rest of the world-China Mobile operates a GSM network. China Mobile has plans to upgrade to a GPRS network while moving subscribers off its analog network, but in the short term Monternet users won’t be able to benefit from a packet-based network.

So, ultimately, will the Monternet be successful? Hsu said it all depends.

“More than what government regulations are or are not, how China Mobile behaves will be the determinant of how successful Monternet is.”

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