Master Thesis Seminar
Benchmarking Japan and Korea Telecommunication
Business for 3G in China
Author:
Supervisor:
Instructor:
Jiannan Zhao
Prof. Patric Östergård
Vesa Riihimäki, M.Sc. (Tech)
Communications Laboratory, HUT ,Finland
2005-06-02
Agenda
Thesis Structure
Japan and Korea Telecom Business
China Telecom Industry
Questions and Answers
Communications Laboratory, HUT ,Finland
2005-06-02
Thesis Structure
• INTRODUCTION
• TELECOMMUNICATION SYSTEMS AND 3G SERVICES
• TELECOM BUSINESS IN JAPAN & KOREA
• THE DEVELOPMENT OF CHINESE TELECOMMUNICATON INDUSTRY
• CONCLUSIONS
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Communications Laboratory, HUT ,Finland
2005-06-02
Why Japan and Korea ?
•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
Industry Criterion -- ARPU
Average Revenue Per User
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Communications Laboratory, HUT ,Finland
2005-06-02
Reason for why Japan and Korea
Their telecom industries are
MATURE !
Communications Laboratory, HUT ,Finland
2005-06-02
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What maturity means...
The Challenge




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
Requires a new approach
 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 share
 Maintain opex and capex discipline
 Scale critical
– Limited scope for differentiation
 Increased volume traffic
– but revenues don’t grow at the
same pace
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Communications Laboratory, HUT ,Finland
2005-06-02
Japan and Korea Telecom Business
- Japan Telecom Industry and Key Player
Industry situation
• The exploiter and leader in terms of telecom business
• Both W-CDMA and CDMA2000 networks are supported
• 3G first mover – NTT DoCoMo
Core Business and Strategies of NTT DoCoMo
• i-mode and FOMA
• Regulations
• Cooperation
• Value chain management
• Service innovation
• Pricing system
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Communications Laboratory, HUT ,Finland
2005-06-02
Japan and Korea Telecom Business
- Japan Telecom Industry and Key Player
1.
Regulation
Establish industrial association
Laws
2.
Cooperation
NTT DoCoMo has built a strong competitive advantage through
forging close relationships with a wide range of companies.
Synchronization makes DoCoMo’s stakeholders having their
interests aligned with the end-customer and committing in
maximizing value and continually upgrading the quality of all
services and products
Communications Laboratory, HUT ,Finland
2005-06-02
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Japan and Korea Telecom Business
- Japan Telecom Industry and Key Player
3.
Value chain management
NTT DoCoMo manages the value chain by closely collaborate
with other telecom actors, enabling all parties involved in the
value chain
4.
Service content innovation
All contents are continually developed and authorized by itself,
kept as comprehensive as possible, and designed for maximum
clarity and attractiveness
Communications Laboratory, HUT ,Finland
2005-06-02
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Japan and Korea Telecom Business
- Japan Telecom Industry and Key Player
5.
Appropriate pricing system
NTT DoCoMo tailors its services with suitable cost then offers
high quality services at optimum price
These usage charges are based on the volume of data
sent/received rather than on time spent connected
DoCoMo is charged by each content provider based on users’
utilization but all the billing issues are under DoCoMo’s control
Communications Laboratory, HUT ,Finland
2005-06-02
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Japan and Korea Telecom Business
- Korea Telecom Industry and Key Player
Industry situation
• The exploiter and leader in terms of telecom business
• Concentrates on CDMA2000 but also supports W-CDMA
• Leading player - SKT
Core business and core competence of SKT
• SKT main services: Ting/ TTL/ June/ NATE etc.
• Core Competence
- brand equity
- technology pioneer
- cooperation
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Communications Laboratory, HUT ,Finland
2005-06-02
Stranded with 3G strategies
Capacity
relief



Better business case
Coverage requirements
No cheap, simple 3G
phones
trade-off ?
Mass market
multimedia

Low credibility

Limited access to capital

No compelling reason to
buy
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Communications Laboratory, HUT ,Finland
2005-06-02
Telecom Business Development
Industry
Regulation
• Regulation is always is leading
factor – Show the direction
• Value Chain Management –
Maximum the opportunity of
every player getting money
Telecom Business
Development
• Cooperation
• Competition
• R&D
• Economics
Technology
innovation
Environment
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Communications Laboratory, HUT ,Finland
2005-06-02
Chinese Telecom Industry
- Market Attractiveness
World Most Attractive Market





Massive population
Continuous deregulatory
reforms of industry
Booming economics
Coverage requirements
Daily technical innovation
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Communications Laboratory, HUT ,Finland
2005-06-02
Chinese Telecom Industry
- TD-SCDMA, China 3G standard
China’s TD-SCDMA Standard Opportunities & Challenge
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
• Opportunities
1.
Own property right
2.
Support from big players
3.
Technical advantages
• Challenge
1.
Short history, less experience
2.
Poor quality of handsets by operators and manufacturers, loose cooperation
Communications Laboratory, HUT ,Finland
2005-06-02
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Chinese Telecom Industry
- difference from Japan & Korea
1.
2.
3.
4.
5.
Different protocols
Telecom industry development history
Regulatory policy
Economic and demographic situation
Industrial operation model
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Communications Laboratory, HUT ,Finland
2005-06-02
Key players on the value chain
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Communications Laboratory, HUT ,Finland
2005-06-02
Chinese Telecom Industry
- Challenges in China




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 WCDMA, EV-DO, TD-SCDMA networks
Developing a low-end, voice only 3G handset
– It represents a market opportunity
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Communications Laboratory, HUT ,Finland
2005-06-02
Steady growth in handset shipments
120,000
100,000

80,000
– Colour is good
'Feature' phones
60,000
– MMS services launched
Voice-centric
phones
40,000
At last some serious drivers
– Multimedia portals
20,000
0
2002
2003
2004
2005
2006
2007

– More attractive product at
high end …
2004
7%
7%
17%
Replacement rate has risen
– … and at the low end
North America
Western Europe
8%
China/India
Asia-Pacific
22%
21%
Easter Europe

By 2004 China/India has 18% of
global handset shipments
Latin America
18%
Middle East & Africa
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Source: ovum
Chinese Telecom Industry
Revenues ($US millions)
- Marketing Projection of China's 3G Services
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0






2002
2003
2004
2005
2006
Basic text
Next-generation text
Multimedia messaging
Information
Entertainment
M-Commerce
2007
Mobile gaming
Mobile financial services
Mobile commerce
Mobile learning
Traffic management
Mobile health care
services
Source: ovum
Communications Laboratory, HUT ,Finland
2005-06-02
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CONCLUSIONS
 Regulatory
policies development needed
 Leading role on the value chain
 Fair competition is a prerequest
 Technology innovation
 Close cooperation with handsets manufacturers
Operators 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 control
 Service portfolio development
Communications Laboratory, HUT ,Finland
2005-06-02
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Questions and Comments ?
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Communications Laboratory, HUT ,Finland
2005-06-02
Thanks for your attention and being here !
Welcome to China !
Communications Laboratory, HUT ,Finland
2005-06-02
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