Tag Archives: China

Will mobile media be driven out of emerging markets (like China, India etc.)?

During the last 15 years, the real innovation on the internet in terms of applications, technology, and business model have primarily come out of the US. It’s not surprising that’s the case, as the Internet was started there and the US had more internet users than any other country in the world. (Although China recently passed the US in terms of internet users in 2008)

However, for the mobile internet and mobile media in general, the US is far from being the key source of innovation the way it has been on the internet. It was a fairly late comer in terms of 3G and MVAS adoption compared to many parts of Asia and Europe. In fact, I might hypothesized that the widespread availability of computers and broadband made Americans less interested/dependent on mobile that other markets.

Some people will ask me if I think China or India will be driving mobile media going forward given they are the fastest growing markets in the world and China having about 3x the number of mobile users of the US and 6X of Japan. My long term answer is maybe, after about 6-10 years, but my short term answer is definitely not. Most new fundamental innovation happens when a critical mass of conditions exists between the maturity of network, user scale, advanced devices and willingness of users to pay.

The Chinese and Indian network infrastructure is WAY behind Japan, much of EU and even the US. 3G licenses just got issued in China this year…and widespread adoption of the new network and 3G devices won’t happen for 3-5 years. There are three 3G networks and 3 2-2.5G networks in the market and lots of legacy handsets to support (over 3000 active models in China). The wide gap in income ranges also means that there will need to be a wide range of price range and capabilities of phones in the market for a long time to come. This also means that the newest/latest technologies and devices won’t be able to get broadly adopted on a ubiquitous basis as other wealthier and smaller countries.

Lastly, there will continue to be an issue with Chinese users paying a high price for mobile content/apps. There was a real abuse of mobile value added services in the past by service providers who took advantage of users and the government/carriers have really cracked down on them in the last few years with polices that makes it very difficult for any company to survive, let alone thrive in the current mobile SP industry environment. Chinese entrepreneurs have also been trained to be very practical and limit cost of long term research but instead opt for winning via faster execution than competitors. So there is no real advantage to being innovative…the real winners are those that copy and get to scale first.

This type of management philosophy is not conducive to creating some revolutionary innovation. I wish I could be more optimistic, but the current state of the Chinese (and Indian) markets just don’t support it. However this could all change in 5+ years as the network matures, the 3G users grow, smart phones become the norm, and buying power rises with the strong overall growth of these markets (relative to western markets). So the future is bright, but don’t expect too much leadership or innovation from the emerging markets in the near term in terms.

3G mobile diversity in China

China’s Ministry MIIT granted three different 3G cellphone licenses on January 7, 2009:
* a TD-SCDMA license to China Mobile (457 million GSM subscribers)
* a wCDMA license to China Unicom (133 million GSM subscribers)
* a CDMA2000 license to China Telecom (43 million CDMA subscribers acquired in 2008 from China Unicom, 216 million fixnet phone subscribers, 38 million broadband subscribers)

MIIT estimates that the operators will invest about US$ 41 Billion for 3G over the next two years, ie about US$ 20.5 Billion/year – about the same annual rate as Japan’s 3G investments every year over the last 8 years since 3G introduction.

Network technology diversity (instead of the Government deciding on a single radio technology standard) means that China’s mobile market a few years down the road may have some similarities to Japan’s today. Several Japanese companies, including “time machine company” SoftBank are working to bring 3G mobile services and technologies from Japan to China.

In our opinion, competition between different 3G radio network technologies is one of the factors driving Japan’s 3G success story.

MIIT decided not to abandon CDMA2000, in order to enhance competition between technologies. Another factor may have been that Japan’s CDMA2000 operator KDDI was initially much more successful in bringing 3G to market than competitors DoCoMo and Vodafone (which sold Japan operations to SoftBank).

In Japan it was not market leader DoCoMo or Vodafone, but KDDI with CDMA2000 winning the 3G introduction battle. Better be prepared for surprises in China too, and don’t underestimate China Telecom.

US$ 41 billion for 3G in China over 2 years is similar to the figures for Japan.

Japan’s mobile operators have invested a around US$ 15 – 20 Billion every year for more than 10 years (for details see our JCOMM report), very similar in size to expected annual 3G investments for all of China.

Japan’s 3G introduction took about 8-9 years (from October 2001 until 2009/2010 – Japan’s last 2G phone was shipped in December 2007). Therefore we expect 3G introduction to take about 10 years for China – could be faster because China can learn from 3G introduction in other countries.

comparing 3G capital investment in China and in Japan

China opts for network diversity – like US and Japan

The figure below – from our JCOMM report about Japan’s telecom sector – shows the 2G -> 3G transition in Japan, where several networks with different technologies compete in the market place. We believe this competition between different technologies is a key factor for the rapid success of 3G in Japan.

China having chosen multiple competing technologies, we may see a similar 3G success story as in Japan, however with much larger subscription numbers.

Japan's 2G to 3G transition

Recent Studies by Eurotechnolgy and Gerhard Fasol:

“eMobile – the New Age mobile operator”
Buy "eMobile – the New Age mobile operator" by Gerhard Fasol

“Japan’s 3G success story”
Buy "Japan’s 3G success story" (Corporate site license, Version 19 of January 19, 2009, no warranty, no damage payments)

“Japan’s Telecommunication Industry”
Buy "Japan’s Telecommunication Industry" (Corporate site license, Version 38 of January 21, 2009, no warranty, no damage payments)

“KDDI’s success story”
Buy "KDDI’s success story" (Corporate site license, Version 10 of January 23, 2009, no warranty, no damage payments)

“Mobile TV”
Buy "Mobile TV" (Corporate site license, Version 6 of January 19, 2009, no warranty , no damage payments)