Generation gap

In the first half of 2002 China's two mobile carriers, China Mobile and China Unicom, have both seen demand for short message services (SMS) explode. China Mobile reported a total of 28.2bn messages sent across its platform in the first six months of the year – 1.7 times the traffic for the whole of 2001.

After the initial success of SMS, both operators are looking ahead to the next generation of technology to boost mobile data services further. In the battle for leadership in 2.5G, the two operators will compete not only in the familiar areas of upgrading and managing their mobile networks, but also in a new and unfamiliar world of content and applications where access to media partners may be the key.

China Mobile was the first to launch mobile data services, when it introduced its Monternet mobile data service in November 2000. Through this service, loosely modelled on NTT Docomo's i-mode, China Mobile allows service providers to offer mobile data services and to bill customers over its network. It charges providers a 15 per cent commission on the service fee. China Mobile now has more than 500 partner service providers, including both traditional internet portals such as Sina and wireless data startups such as Guangdong Xunlong.

China Unicom introduced a similar business model under the brand Uni-Info in August 2001, nearly a year after Monternet's launch. Uni-Info provides partner service providers with a platform on which to offer SMS services. Unicom offers providers a more favourable revenue-sharing model than China Mobile's, charging only 12 per cent commission.

Unicom, however, has fallen behind China Mobile in its march towards 2.5G. China Mobile launched a commercial GPRS service on May 17 this year and claimed to have signed up 1.3m GPRS subscribers in the first two months. With its focus set squarely on CDMA, Unicom has elected not to upgrade its GSM network to GPRS. Instead, the company wants to roll out the 2.5G CDMA1X service over its newly deployed CDMA network. But with CDMA struggling to gain traction in the market, network upgrades to 2.5G have been repeatedly delayed. Unicom finally opened bidding for an upgrade to CDMA1X in mid-July, and the service is expected to be launched by the end of the year.

While preparing themselves for competition in 2.5G, China Mobile and China Unicom have both realised that content is the key to success. In building partnerships with content providers, China Mobile has a clear advantage. First, Uni-Info was launched nearly a year later than Monternet, by which time many providers had already developed strong relationships with China Mobile.

In addition, China Mobile's market share of some 70 per cent means that it can offer content providers a greater number of users. It has used this position to put pressure on mobile data service providers to limit the work they do with Unicom's Uni-Info. While most service providers still work with both operators, they are careful not to do anything that would jeopardise their relationship with China Mobile. As a result, Unicom has been forced to aggregate much of its own content.

To win out in the 2.5G market, China Mobile is already building relationships with traditional media players such as Walt Disney and Viacom's MTV. According to press reports, the company is planning to offer a sub-brand of Monternet called Rock-Monternet together with Rock Records. In addition, China Mobile is planning to launch MTV content. The October launch of multimedia messaging services (MMS) will expand the range of media content that China Mobile can offer over its network.

How quickly these new mobile data services will take off is still unclear, but it is certain that operators face an increasingly complex world of partnerships with media companies, handset makers and distributors, along with other players. The good old days when China Mobile and Unicom could just operate a network and count the cash coming in are gone for good. China Mobile is first out of the gates in this new world, and Unicom will have to work hard to catch up.

This article was written by Zhang Dongming, research director at BDA (China), a consulting and market research firm focused on telecom, media, and technology in mainland China. Website: http://www.bdachina.com.