Feature: Telecom operators bid to widen profit margins ( 2004-01-13 09:55) (China Daily by Chen Zhiming)
China's telecom operators will step up their efforts this year to promote
their high value-added services in a bid to widen profit margins as
government-controlled call charges are kept at low levels despite high market
penetration.
Such services as messaging, phone payment, mobile QQ, mobile securities,
mobile location and broadband services have taken centre stage in the promotion
efforts of both China Mobile and China Unicom, the mobile phone duopoly.
Some telecommunications analysts say they doubt whether there will be many
consumers willing to pay for those services that seem not very interesting and
only targeting high-end customers.
But market saturation and low call fees have combined to force the two
publicly listed mobile phone operators to seek new sources of revenue to
maintain growth.
Wang Jianzhou, chairman and president of China United Telecommunications
Corporation, stressed that his company will further boost the value-added
service based on its CDMA (code division multiple access) 1X networks.
"It will be a significant part of our targets this year," he told China
Daily.
In an effort to hammer out more attractive telecom value-added services,
China Unicom has been kept seeking partnerships with many telecom services
providers both at home and abroad.
For example, it has formed a joint venture with US-based Qualcomm Inc early
last year in Beijing to boost the development of its CDMA wireless data
applications through Qualcomm's Binary Runtime Environment for Wireless (BREW)
platform.
The BREW platform is part of a complete, end-to-end solution for wireless
applications development, device configuration, application distribution, and
billing and payment.
In December, it joined hands with China Galaxy Securities Co Ltd, enabling
its CDMA subscribers to use their mobile phones to conduct mobile stock trading.
The co-operation with SK Telecom is likely to be officially unveiled early
this year, he revealed.
According to him, the company has so far agreed to co-operate with more than
300 content providers.
Being its rival, China Mobile also engaged itself in the promotion of
value-added services such as short messaging service (SMS), multi-media
messaging service (MMS) and mobile payment.
Launched in 2000, SMS has proved to be the most successful value-added
service.
To further boost the SMS market, China Mobile launched "Mobile Zone" services
for young people, allowing them to send SMS messages at a comparatively low
cost.
Company sources said that more than 17 billion SMS messages were sent last
year.
The world's largest mobile operator aims to turn more telecom value-added
services like MMS and mobile payment into new growth areas.
Despite the duopoly's efforts, there is almost no effective competitions on
value-added services for China Mobile and China Unicom as voice transmission is
still the major usage of mobile phones.
Insiders said that it is still not easy to promote value-added service in
China as it only accounts for a tiny part of telecom revenues.
Li Nanzheng, deputy general manager of Beijing Sainuo Market Research
Company, said: "The value-added telecom service is only in a primitive stage as
the revenue reaped from the value-added telecom service is comparatively very
small."
In a sharp contrast, citing SK Telecom for example, its revenue from
value-added service has surpassed that of its voice business.
He believes the bottleneck for value-added telecom service right at the
moment are "low telecom fees, practical usage and easy operation."
"If a service can meet the requirements, it in 90 per cent will become
successful," he argued.
Despite the mediocre performance, domestic telecom operators all show
increased fervor on the future development of value-added services.
"Based on 'Vnet', we will take advantage of our broad network to hammer out
more value-added services," Ye Lisheng, general manager of China Vnet Business
Department of China Telecom Corp, the country's largest fixed line operator.
Officially unveiled in September last year, the 'Vnet' platform enables China
Telecom to join hands with more than 200 service providers to roll out more
value-added services.
"It has proved to be a new profit growth area for us," he said.
"We are to roll out several killer applications to attract more customers
this year," Ye said.
The company's revenue was dragged down as the increasing popularity of mobile
phones has diverged its voice business.
Figures from the Ministry of Information Industry showed that the number of
mobile phone subscribers has, for the first time, surpassed that of fixed-line
users in October last year.
By the end of November, the country had recruited more than 263 million
mobile subscribers and 259 fixed-line users.
"The market for value-added telecom services has actually not been well
formed" said Wang Yuquan, president of consulting firm Frost&Sullivan
(China).
Insiders believe all the telecom operators are in the stage of nurturing
their potential customers as subscribers did not choose them because of their
value-added service.
An effective industrial chain as well as a sound business mode should be
worked out to stimulate the potential market, said Xiao Rongmei, researcher with
Telecom Research Institute of the MII.
She believe that telecom operators, equipment providers, Internet service and
content providers and value-added service providers should work closely to
cultivate a booming value-added telecom service market.
"There are several ways of co-operating. Companies should choose a most
suitable one to benefit from this co-operation," she suggested.
Forming alliances between telecom operators and value-added business
providers has nowadays become the most common international practice within the
industry.
China Mobile, for example, launched its "Monternet" project in November,
2000, teaming up with ICPs, ISPs and software developers such as Tencent, Sina
Corp, Sohu and Netease.
Similar practices can be found in Japan's DoCoMo, J-Phone, SK Telecom and
Britain's Vodafone.
Such co-operation was hailed by all the participants as it helps them to
share resources and gain mutual benefits.
"It will continue to be a main co-operative pattern for value-added telecom
services as it has greatly boosted the industry," Xiao said.
Virtual operation mode, which means by buying business from telecom
operators, those firms who have no resource of telecom networks and frequency
resources can upgrade the telecom business that they purchased from telecom
operators and then sell the services with their own brands.
"As a new business model, it enables telecom operators to better construct
and maintain its networks while virtual telecom operators can take advantage of
their marketing and brand so as to improve the level of telecom service and
explore new service business," Xiao said.
In the overseas market, the development of virtual operator developed very
fast in the past few years.
For example, Hong Kong is planning to open 30 per cent of network resources
to virtual operators when kicking off its 3G service.
"With the further opening-up of China's telecom market, this mode will soon
become popular," Xiao predicted.
She believe that virtual operators is likely to domain the services in the
areas of mobile phone sales, prepaid system service, short message service and
personalized wireless applications.
Xiao also called for the closer co-operation between those small and
medium-sized value-added telecom service providers. It will help them to diverge
investment risks, enlarge their business scope as well as gain larger profits.
According to the MII, there are currently more than 4,000 SMEs involved in
the business.
Forming a joint venture or signing a co-operative agreement with foreign
telecom firms, will also be an effective way to address market demand, Xiao
said.
