Chinese SPs stand stronger
By Amy Gu, Wed Jun 30 05:45:00 GMT 2004

Chinese telecom operators are lucky enough to enjoy a less competitive market here. There are fewer competitors and more customers. But SP (Service Provider) is another case. Like China Mobile, it works with hundreds of SPs (or CPs), and maybe “manage” will be a better word. Because the market of one exclusive SP is much smaller than that of the telecom operators, it stands in a weaker place, either in the initial negotiation or in the continue cooperation.
But now situation seems changed. As many Internet service providers realize the importance to enter into the telecom industry, they are more aware of their current advantages. Internet boom remains something, though it was thought to be a bubble. Two of the examples are Shanda and Tencent. Shanda is one of the leaders in Chinese online games, and Tencent owns the largest users in online chatting, using the software called QQ. One of my friends in Tencent once said to me that Tencent was good at “threatening” the operators based on its own crazy users. Now they both go public on stock exchang, the former is on NASDAQ and the latter is on Hongkong. On Jun. 28, Shanda went further. It announced the close cooperation with China Unicom, the operator who owns the most telecom licenses in China, on the provision of online game held in the Internet Bars. Besides its engagement in GSM and CDMA, it provides international and domestic long distance calls, data communications (including Internet and IP telephony) and other related telecommunication value-added businesses nationwide.
In their cooperation, China Unicom is planning to become the leader in the service of Internet bars, where they can provide all kinds of Value-Added services, such as Internet access, online games, distance education, video transmission and IP phones. And it has chose Shanda to be one of its content provider in the online games. Seems an appealing plan to China Unicom, but Shanda will win more.
First, Shanda can get over the difficult status caused by the government’s attitude towards the online games. Just a few weeks ago, the government announced a series of rules on the TVs and Internet bars to restrict the online games. It is said that many online games column are forced not to show public on TV. Many online game providers are afraid of their own business in China, but Shanda choose the right partner with right government backgrounds.
Second, it will be hard to imagine how much Shanda will gain from the cooperation. The reporter forecasts that China Unicom will earn more than 10 million RMB from renting out the game servers to Shanda. But in the Shanda’s financial reports, they earn 137.0 million RMB only in the first quarter of 2004, where its revenue is 240.2 million RMB. Shanda wins great profit in this industry, and the profit will add more when China Unicom’s bars provides much more users. Though the cooperation is called “double-win”, Shanda will earn more undoubtedly.
Third, at the time Shanda just make use of the VAS license owned by China Unicom. And in the future, it can access into the mobile industry via the good relationship. Mobile market will be much larger than the one in Internet bars. Shanda has taken an advance and far-sight step.
All in all, Shanda’s great market share in its own industry makes a great advantage to push the cooperation with telecom operators. In the era when operators’ profit becomes less, SPs can persuade and attract them into the new service provision, where SPs will stand stronger in the cooperation.