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CONFIDENTIALChina’sMobileTelecomServicesIndustryOverviewGCOPracticeDevelopmentMay2002ThisreportissolelyfortheuseofFirmpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionwithoutpriorwrittenapprovalfromMcKinsey&Company.02PDChinaMobileTelecomsServiceIndustry020403.ppt1ACKNOWLEDGEMENTSANDREFERENCESMGMsandCSSinvolvedintherelevantstudiesincludethefollowing:TonyPerkins(BEI)StefanAlbrecht(BEI)ChipperBoulas(HKO)PeterKenevan(TOK)PerchowJosephChang(SHA)AndrewWu(HKO)HaiWu(BEI)JaneXing(HK)YiFeng(BEI)ShengFLi(SHA)YoshinobuTakanuki(TOK)GraemeHunter(JOH)JuliaYang(BEI)EricXu(BEI)JasonLiu(BEI)ShirleyChen(BEI)TheseriesofPDsincludethefollowing:#ChinaMacroeconomicEnvironment#China’sMobileTelecomServiceIndustryOverview#China’sInternetIndustryOverview#ChinaTelecomEquipmentandServicesOverview#China’sMobileHandsetSectorOverview#ChinaTelecomIndustryRegulatoryOverview#KeySuccessFactorsandCaseStudiesofMNCsEntrytoChina02PDChinaMobileTelecomsServiceIndustry020403.ppt2KEYMESSAGES1.China’smobiletelecomservicemarketishugeandfastgrowing,representingUS$21billionmarketsizein2001andUS$38billionin2005.Thismarketissupportedbytheworld’slargestsubscriberbaseat145million,alreadycomprising15%oftheworld’stotalin2001andgrowingtopotentially218millioninalowcaseor300millioninahighcaseby20052.Thecompetitivelandscapeformobileserviceshasevolvedfromasingleregulatorandoperatortotoday’sduopolyofChinaUnicomandChinaMobile,bothofwhomareunassociatedwiththeMinistryofInformationIndustries.AsecondbreakupofChinaTelecomisexpectedtoformtwolargetelecomoperators,ChinaTelecomandChinaNetcomGroup,whoarelikelytoreceivemobilelicenses.Afifthtelecomoperator,ChinaRailcom,alsohasthepotentialofreceivingathirdgenerationlicenseandbuildingamobilebusiness.Fornow,ChinaMobiledominatesthemarketwith82%valueshareand72%subscribershareandownsmuchofthehighvalueuserbase.Howeverchurnisalreadyhighandisexpectedtoincreasewithcontinuingpricingpressuresandincreasedcompetition.3.WirelessdataservicesareexpectedtogrowquicklyinChinatoamarketofpotentiallyoverUS$4billionby2005,usedby43%ofallmobileusers.Interestfromconsumersurveyshavebeenhighandoperatorsandotherplayersareactivelybuildingservicesinthemarket.WhileearlyWAPserviceshavefailedtocatchon,SMShasgrownexponentiallywithupto20billionSMSmessagesin2001.Theearlyadopterswillbemobileprofessionalsandmodernyouth,whowillrequireservicesanddevicestailoredtotheirneeds.4.Regulatorychangesloom,particularlywiththeaccessionofChinatotheWTO.WhileforeignerswillbeunlikelytosetupMVNOs,WTOwillallowgreaterparticipationofforeignersinbasicandvalueaddedservices,althoughgeographiclimitationswillexistthrough2004andChineseplayerswillberequiredtoownatleast50%oftelecomserviceventures(51%forbasicservices).Regulatoryrisksremain,withnomeanstoappealregulatordecisions,unclearinterpretationofregulationincludingWTOcommitments,andthegovernment’strackrecordofintransparentandunpredictabledecisionmaking.(SeeseparateregulatoryPDfordetails)Appendix–Playersprofiles–3Gtechnologystandardschoices02PDChinaMobileTelecomsServiceIndustry020403.ppt3KEYMESSAGES1.China’smobiletelecomservicemarketishugeandfastgrowing,representingUS$21billionmarketsizein2001andUS$38billionin2005.Thismarketissupportedbytheworld’slargestsubscriberbaseat145million,alreadycomprising15%oftheworld’stotalin2001andgrowingtopotentially218millioninalowcaseor300millioninahighcaseby200502PDChinaMobileTelecomsServiceIndustry020403.ppt47.68.411.816.221.127.932.034.538.41997199819992000200120022003200420051997-2001MOBILESERVICEREVENUEGROWTHOF30%CAGRHASOUTPACEDOTHERTELECOMSERVICESECTORSANDISPROJECTEDAT16%THROUGH2005RevenuesUS$BillionsCAGRvs.otherindustries(1997-2001)Percent-214.330MobileFixedlinePagingCAGR30%CAGR16%Source:DeutscheBank;McKinseyanalysis02PDChinaMobileTelecomsServiceIndustry020403.ppt515517619721813254385145*RevenuesdonotequaltheproductofARPUassubscriberfiguresareprovidedforyearend,notaveragesubscribersduringayear.Detailedinformationonthetimingofnewsubscriptionsandchurnrequiredforthecalculationofaveragesubscribersduringagivenyearisnotavailable**AllCAGRsarecalculatedontheannounceddataSource:DeutscheBank;JPMorgan;MIIEXTRAORDINARYSUBSCRIBERGROWTHISTHEPRIMARYDRIVEROFREVENUEEVOLUTION,MORETHANMAKINGUPFORLARGEDECLINESINARPUDUETOSTIFFCOMPETITION1312121215212936497.68.411.816.221.127.932.034.538.4979899000102E03E04E05EMobilerevenues*$BillionsNumberofsubscribers–lowcaseMillionsCAGR30%CAGR16%CAGR83%ARPUUS$/monthCAGR-24%CAGR-7%•Penetrationinitiallylow•Governmentbackingforincreasingsubscribernumbers•Relativelylowfixedlinepenetration•Low-endprepaidsubscriberincreaseDrivers•Declineduetoincreasedprepaidandlowerspendingbylateentrants•Tariffreductionascompetitionincreases•Slightlyoff-setbyincreaseindatatrafficinlateryearsCAGR19%20823526329117161515AnnouncedEffective02PDChinaMobileTelecomsServiceIndustry020403.ppt685851075816021830020581290*05forecastuselowcase,netsubsafterinactiveandmulti-sim-cardreduction**MajorEuropeancountriesinclude:UK,France,Italy,Germany,Netherlands,Spain,SwedenSource:JPMorgan;WEFA-WMM;MII;McKinseyanaly