Benchmarking Japan and Korea Telecommunication Business for 3G in China

Benchmarking Japan and Korea Benchmarking Japan and Korea Telecommunication Business for 3G in Telecommunication Business for 3G in

ChinaChina

Author: Jiannan ZhaoSupervisor: Prof. Patric ÖstergårdInstructor: Vesa Riihimäki, M.Sc. (Tech)

Master Thesis SeminarMaster Thesis Seminar

Communications Laboratory, HUT ,Finland

2005-06-02

AgendaAgenda

Thesis StructureThesis Structure

Japan and Korea Telecom BusinessJapan and Korea Telecom Business

China Telecom IndustryChina Telecom Industry

Questions and AnswersQuestions and Answers


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Thesis StructureThesis Structure

• INTRODUCTIONINTRODUCTION

• TELECOMMUNICATION SYSTEMS AND 3G SERVICESTELECOMMUNICATION SYSTEMS AND 3G SERVICES

• TELECOM BUSINESS IN JAPAN & KOREATELECOM BUSINESS IN JAPAN & KOREA

• THE DEVELOPMENT OF CHINESE TELECOMMUNICATON THE DEVELOPMENT OF CHINESE TELECOMMUNICATON INDUSTRY INDUSTRY

• CONCLUSIONSCONCLUSIONS


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Why Japan and Korea ?Why Japan and Korea ?

Industry Criterion -- ARPU

Average Revenue Per User

•Markets are saturating

between 70-90% of

population

•Also saturation in high

to mid-value customers

in developing markets

•Prepay growth is

driving down ARPU

•Prepay revenues

third or less of

contract revenues


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Their telecom industries are

MATURE !

Reason for why Japan and Korea Reason for why Japan and Korea


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What maturity means...What maturity means...

In developing countries, a two-speed market – Saturation in mid-to-high

end– Growth in low end users– Pressure on

margins/ARPU/network Shift in management focus

– Customer retention - not acquisition

– Segmentation Regulation

– Mobile termination, USO, 3G rollout

Bundling by full service operators - squeeze mobile only players

Prepare for industry consolidation – Most countries will only

sustain 2 to 3 mobile operators per market

Focus on high-profit customers– Growing “wallet share”

rather than market shareMaintain opex and capex

disciplineScale critical

– Limited scope for differentiation

Increased volume traffic – but revenues don’t grow

at the same pace

The Challenge Requires a new approach


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Japan and Korea Telecom Japan and Korea Telecom BusinessBusiness - Japan Telecom Industry and Key Player- Japan Telecom Industry and Key Player

Industry situationIndustry situation

• The exploiter and leader in terms of telecom The exploiter and leader in terms of telecom business business • Both W-CDMA and CDMA2000 networks are Both W-CDMA and CDMA2000 networks are supported supported • 3G first mover – NTT DoCoMo3G first mover – NTT DoCoMoCore Business and Strategies of NTT DoCoMo Core Business and Strategies of NTT DoCoMo

• i-mode and FOMAi-mode and FOMA• RegulationsRegulations• Cooperation Cooperation • Value chain managementValue chain management• Service innovationService innovation• Pricing systemPricing system Communications Laboratory,

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1.1. RegulationRegulation

Establish industrial association Establish industrial association

Laws Laws

2.2. CooperationCooperation

NTT DoCoMo has built a strong competitive NTT DoCoMo has built a strong competitive advantage through forging close relationships advantage through forging close relationships with a wide range of companies. with a wide range of companies. Synchronization makes DoCoMo’s stakeholders Synchronization makes DoCoMo’s stakeholders having their interests aligned with the end-having their interests aligned with the end-customer and committing in maximizing value customer and committing in maximizing value and continually upgrading the quality of all and continually upgrading the quality of all services and products services and products



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3.3. Value chain managementValue chain management

NTT DoCoMo manages the value chain by closely NTT DoCoMo manages the value chain by closely collaborate with other telecom actors, enabling collaborate with other telecom actors, enabling all parties involved in the value chain all parties involved in the value chain

4.4. Service content innovation Service content innovation

All contents are continually developed and All contents are continually developed and authorized by itself, kept as comprehensive as authorized by itself, kept as comprehensive as possible, and designed for maximum clarity and possible, and designed for maximum clarity and attractiveness attractiveness



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5.5. Appropriate pricing systemAppropriate pricing system

NTT DoCoMo tailors its services with suitable cost NTT DoCoMo tailors its services with suitable cost then offers high quality services at optimum price then offers high quality services at optimum price

These usage charges are based on the volume of These usage charges are based on the volume of data sent/received rather than on time spent data sent/received rather than on time spent connected connected

DoCoMo is charged by each content provider based DoCoMo is charged by each content provider based on users’ utilization but all the billing issues are on users’ utilization but all the billing issues are under DoCoMo’s control under DoCoMo’s control



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Japan and Korea Telecom Japan and Korea Telecom BusinessBusiness - Korea Telecom Industry and Key Player- Korea Telecom Industry and Key Player

Industry situationIndustry situation

• The exploiter and leader in terms of telecom The exploiter and leader in terms of telecom business business • Concentrates on CDMA2000 but also supports Concentrates on CDMA2000 but also supports W-CDMA W-CDMA • Leading player - SKTLeading player - SKTCore business and core competence of SKTCore business and core competence of SKT

• SKT main services: Ting/ TTL/ June/ NATE etc. SKT main services: Ting/ TTL/ June/ NATE etc. • Core Competence Core Competence

- - brand brand equity equity - - technology technology pioneer pioneer - - cooperationcooperation Communications Laboratory,

HUT ,Finland 2005-06-02

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trade-off ?

Stranded with 3G strategiesStranded with 3G strategies

Low credibility Limited access to capital No compelling reason to

buy

Mass marketmultimedia

Mass marketmultimedia

Capacityrelief

Capacityrelief

Better business case Coverage requirements No cheap, simple 3G

phones


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• Regulation is always is Regulation is always is leading factor – Show leading factor – Show the direction the direction

• VValue Chain Management – Maximum the opportunity of every player getting money

• Cooperation

• Competition

• R&D

• Economics

IndustryIndustry

EnvironmentEnvironment

RegulationRegulation

Technology Technology innovationinnovation

Eco

nom

ic

Eco

nom

ic

Com

petition

Coo

pera

tion

Coo

pera

tion

Valu

e Chain

Valu

e Chain

Telecom BusinessTelecom Business DevelopmentDevelopment

Telecom Business DevelopmentTelecom Business Development


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Chinese Telecom Industry Chinese Telecom Industry - - Market AttractivenessMarket Attractiveness

Massive population Continuous

deregulatory reforms of industry

Booming economics Coverage

requirements Daily technical

innovation

World Most Attractive Market


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China’s TD-SCDMA Standard Opportunities & Challenge

Chinese Telecom Industry Chinese Telecom Industry - - TD-SCDMA, China 3G standardTD-SCDMA, China 3G standard

TD-SCDMA was proposed by the China Wireless Technology Standard (CWTS) Group in 1998, approved by ITU in May 2000, and joined 3GPP in March 2001, as one of the three 3G transmission standards

• Opportunities1. Own property right

2. Support from big players

3. Technical advantages

• Challenge1. Short history, less experience

2. Poor quality of handsets by operators and manufacturers, loose cooperation


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Chinese Telecom Industry Chinese Telecom Industry - difference from Japan & Korea - difference from Japan & Korea

1. Different protocols

3.3. Telecom industry development history Telecom industry development history

4.4. Regulatory policyRegulatory policy

5.5. Economic and demographic situation Economic and demographic situation

6.6. Industrial operation modelIndustrial operation model


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Key players on the value chainKey players on the value chain


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Competition in the handset market– Putting extreme pressure on margins

Building a business case for 3G– Coverage matched with low-end handsets?– Thin rollout in urban areas for high-value

markets? Multiple networks

– Managing platforms, applications, interoperability across W-CDMA, EV-DO, TD-SCDMA networks

Developing a low-end, voice only 3G handset– It represents a market opportunity

Chinese Telecom Industry Chinese Telecom Industry - - Challenges in ChinaChallenges in China


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Steady growth in handset Steady growth in handset shipmentsshipments

At last some serious drivers

– Colour is good

– MMS services launched

– Multimedia portals

Replacement rate has risen

– More attractive product at high end …

– … and at the low end

By 2004 China/India has 18% of global handset shipments

0

20,000

40,000

60,000

80,000

100,000

120,000

2002 2003 2004 2005 2006 2007

'Feature' phones

Voice-centricphones

2004

17%

22%

18%

21%

8%

7%7% North America

Western Europe

China/India

Asia-Pacif ic

Easter Europe

Latin America

Middle East & Africa

Source: ovum

20

Mobile gaming Mobile financial

services Mobile commerce Mobile learning Traffic

management Mobile health care

services

Chinese Telecom Industry Chinese Telecom Industry

- - Marketing Projection of China's 3G ServicesMarketing Projection of China's 3G Services

01,000

2,0003,0004,000

5,0006,0007,000

8,0009,000

2002 2003 2004 2005 2006 2007

Rev

enu

es (

$US

mill

ion

s)

Basic text Next-generation text

Multimedia messaging Information

Entertainment M-Commerce

Source: ovum


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CONCLUSIONSCONCLUSIONS

Regulatory policies development neededLeading role on the value chainFair competition is a prerequestTechnology innovationClose cooperation with handsets manufacturersOperators increasingly want customised devices– Proven success in Japan and Korea– Point of differentiation in a mature market– Allows for a better market segmentation strategy

– provides more device cost controlService portfolio development


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Questions and Questions and Comments ?Comments ?


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Thanks for your attention and being here !Thanks for your attention and being here !

Welcome to China !Welcome to China !


2005-06-02

Benchmarking Japan and Korea Telecommunication Business for 3G in China

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