It’s no mystery why so many content and messaging providers are working so hard to pry the lid off the booming Chinese wireless data market. The question is how to do it.
According to statistics released by China’s Ministry of Information Industry last week, the country has added 55 million mobile-phone users so far this year. The number of Chinese mobile users is expected to grow from today’s 320 million-already the world’s largest market-to 500 million by 2008, according to research firm In-Stat/MDR.
But it’s not just the number of mobile-phone users that’s so alluring; it’s the number of non-users. At about 25 percent, the mobile-phone penetration rate in China is less than half that of the United States and about one-third of Asian market leaders South Korea and Singapore.
“Despite all the high numbers (of current subscribers), China is still a growing mobile market with around 25-percent penetration,” said Scott Allen, marketing director for Surf-Kitchen, a U.K. firm that develops user interface software for handsets. In an effort to tap China and other Asian markets, SurfKitchen opened an office earlier this month in Singapore.
“Data services are gaining momentum, though today it is more dominated by SMS (short message service) data,” Allen said. “China is already the largest SMS market in the world.”
And while SMS revenues are substantial, they pale in comparison to potential profits from more sophisticated applications like games, wireless e-mail and multimedia messaging. But Chinese networks are maturing rapidly.
Despite ongoing delays, initial 3G deployments are expected in begin in 2005, and the number of 3G subscribers should grow to 118 million by 2008, according to In-Stat/MDR. According to a report last week in China’s 21st Century Business Herald, commercial trials of the homegrown 3G TD-SCDMA standard are set to begin in seven cities in March. China, which has spent hundreds of millions developing the standard, will move forward with the technology despite network failures during a five-month test that ended earlier this month.
The government also plans to grant licenses for deployments of W-CDMA and CDMA2000 standards, the newspaper reported.
As the number of wireless users grows, so does the number of inexpensive, data-friendly handsets on the market, which directly correlates to an increased uptake in data services, according to Gilles Raymond, co-chief executive officer of France-based publisher In-Fusio.
“More and more phones are being rolled out to the general consumer that now have the capability to download content,” added Raymond, who said his company accrues 200,000 new players in China every month.
The business model is also attractive for content providers, Surf-Kitchen’s Allen said. Chinese carriers charge content providers between 9 and 15 percent of each transaction over their networks, while Western operators’ charges can vary widely and can be much more expensive.
“(China’s) is a clearly attractive model where content developers and aggregators have room to profit, develop and grow,” said Allen.
One of the biggest reasons for the surge in mobile-phone use is simply a lack of alternatives. Unlike most modern markets, where wireless networks are used to complement-or even replace-hard-line infrastructures, China has relatively little in the way of traditional phone services, leaving some citizens the choice of a mobile phone or no phone at all.
Lack of a wireline buildout has a downside, however. A dearth of existing infrastructure can lead to problems deploying high-tech networks, particularly in sparsely populated areas where no current phone services exist, said Neville Street, chief executive officer of Mobile 365, a U.S.-based messaging company.
“China is kind of unique in that they don’t have a good fixed-line infrastructure,” said Street, whose company has established an office in Beijing. “The market still has a fair way to go; it’s tricky to deploy 3G services over a very large area.”
Earlier this month, China awarded Mobile 365 a license to deliver mobile content through carriers to all 31 provinces in the country. But getting governmental approval doesn’t mean unbridled access: The government continues to closely monitor mobile Internet and wireless companies, and providers that run afoul of the law risk severe repercussions, including imprisonment.
Several wireless service and content providers have faced sanctions in recent months. Chinese wireless data company Sohu.com was hit with a $500,000 fine for improperly subscribing users, and several competitors have had their multimedia services suspended for offering questionable content.
The government suspended interactive voice-response services from one provider after saying its chat lines and other offerings were “inappropriate.”
The government’s presence is felt throughout the country’s wireless industry. The country has just two dominant operators, China Mobile and China Unicom, both of which are majority owned by the government, meaning carrier relationships are both more valuable and more tenuous than in other markets.
“There are tons of other companies that want to get mobile content into China,” said Mforma founder and CEO Daniel Kranzler, “but it doesn’t work that way. (China) welcomes the Japanese and Korean firms, but three years later (foreign companies) go home with their tails between their legs.”
Companies that fail to assimilate both culturally and corporately are doomed, Kranzler said.
“China is a very powerful, very proud society. Unless you have the ability to blend and partner with their society, (you’ll fail,)” he added.
Instead of blending, though, Kranzler partnered. Mforma, a mobile game publisher, established a subsidiary in Shanghai in July, then invested heavily in Magus-Soft, a top China-based developer of games and other content. The acquisition allows Mforma to tap the market without looking like an outsider trying to elbow in.
Although doing wireless business in China may be more difficult than in other markets, the problems companies face are largely the same obstacles that must be overcome when targeting any global segment. They key, Kranzler said, is to be flexible enough to offer the right content to the right market.
Said Kranzler: “The Ministry of Culturein China says, `If you want to bring in a beach volleyball game for phones, you can’t have girls in bikinis on it.’ The Germans say, `If those girls have bikinis on, you’ve got to take them off.’ “
