While the names Kong Linghui, Fu Mingxia and Cai
Yalin may mean little to those outside China, on the mainland they may
well go down in history as three heroes who helped launch China's
mobile data services revolution. By winning gold medals in table
tennis, diving and sharpshooting at the 2000 Summer Olympics in Sydney,
Kong, Fu and Cai were unwittingly part of China's first commercial
trial run of SMS-based data services. Every time a Chinese athlete
won an Olympic medal, subscribers who had signed up for the test service
received an SMS on their mobile phones.
The Olympic SMS
experiment represented the first time in that China Mobile had shared
revenue with third-party mobile service providers (MSPs). And its
success provided the mainland's largest mobile operator with the
proof of concept it was looking for. At the end of the day, China took
home a record 59 medals (including 28 golds) and China Mobile began
preparations to launch its Monternet initiative, a move that may be
remembered as the spark that ignited what has the potential to become
the world's largest mobile data services
industry.
Room to Grow
With
billboards and advertisements in every Chinese major city urging
consumers to download the newest ring tones, sign up for SMS horoscopes
or access the latest World Cup scores, it's hard to believe that
only two years ago China barely had a mobile data services industry. In
2000, what little data services existed accounted for a paltry $2.6
million, less than the price of an old art deco villa in Shanghai's
former French Concession. In 2001, its first year of operations, the
industry was worth $192 million. With GPRS already launched in China
and WCDMA and CDMA2000 on the horizon, many analysts believe this
exponential growth will continue. The market is currently growing at 15
percent a month and estimates for the size of mobile data services in
2005 range from $5- to $10 billion.
None of this would have been
possible without Monternet ("MObile iNTERNET"). Today its
revenue-sharing model - where China Mobile does all the billing and
takes 15 percent out of every charge while MSPs get the remaining 85
percent - is considered one of the most equitable arrangements in the
global data services industry. Similarly, its plug-and-play technical
platform, although the technology often differs from one regional
Monternet operator to the next, makes it easy for even small companies
to participate.
By lowering the barriers to entry, Monternet has
unleashed a wave of new business creation. From a starting point of
just 6 MSPs in the first quarter of 2001, China's mobile data
services industry now has anywhere from 400 to 500 companies. Though
the vast majority of these are small, bootstrap operations working at
the local level, companies such as Linktone, Sohu.com and Sina.com have
not only emerged as national players but have attracted major
investments from the likes of NTT DoCoMo and Taiwan's Acer
Corporation.
In any other country the Monternet initiative
would be viewed as a major wireless success story. But in China - a
nation whose telecom operators are not exactly considered paragons of
innovation or generous business terms - it represents nothing less than
a revolution.
"It is without doubt one of the most
progressive business models we've ever seen come out of
China," says Arthur Wang, founding partner of the Hong Kong-based
venture capital firm, 698 Capital. "It's been a win for the
operators, a win for the content providers and a huge win for Chinese
consumers, who now have an abundance of choice in this space. Beyond
that, it's given birth to a vibrant new industry and one
that's going to play a not insignificant role in the Chinese
economy, particularly once 3G is rolled out. And it's done all
this in just 18 short months."
"Prior to the Sydney
Olympics, everything was just pitch black," says Jun Wu, CEO of
Intrinsic Technology, a Shanghai-based wireless software company and
one of the first Monternet participants. Jun Wu is describing the
landscape in China at the dawn of the new millennium. The dot-com
implosion that began in America had taken most Chinese content providers
down with it. Although a number of companies were sniffing around the
wireless data space, with complete control in the hands of China Mobile
and the newly created China Unicom, no one even knew if a third-party
data services industry was even a
possibility.
Learning from
Experience
But a few factors conspired to pave the
way for Monternet's debut. The first was the fact that China
Mobile had listed as a publicly traded company on the New York and Hong
Kong stock exchanges in 1997. And for the first time, the former
state-run monopoly was subject to the scrutiny of shareholders, who were
questioning how it intended going to raise ARPUs. Particularly now
that it had a serious competitor in the form of China Unicom, whose
CDMA-based offerings were appealing to high-end users.
Meanwhile
though WAP was turning out to be a worldwide fiasco, things were
happening in Japan that were catching the attention of both Chinese
government officials and wireless industry players. "It was a
situation where most people were looking to Europe for early market
movements as an indication of how they should move in the future, but in
the case of wireless data, I'd have to say it's something that
has been talked about quite a bit in Europe but never came onto the
scene very strongly," says Intrinsic's Jun Wu. "All of a
sudden in Japan we see that it's working out. So the attitude was
- let's what we can learn. And what everyone noted was the
difference between iMode and the European models, and why Imode took
off, was because of the business model and not the technology."
And finally there was the Sydney Summer Games, which was
predicted to pull in the Chinese largest audience for any sporting event
in history. Given that it had a surefire test audience, China Mobile
agreed to a trial run for an Olympics-based SMS service in the cities of
Beijing, Shanghai and Guangdong. By the end of the experiment, the new
service had generated 25 million messages in three weeks. At US$0.012
per message, that didn't exactly add a lot of meat to China
Mobile's bottom line. But in a reality, it didn't
matter.
"It gathered a lot of public support and the
customer response was very good," explains Jun Wu. "The
operator was seen as very innovative and, as a result, we started to see
them taking a more proactive stance in leading the way for how the
industry should be shaped. Before that it was - let's just see
how the rest of the world does it and follow in their footsteps. But
with the Olympics they were seen as taking more of an initiative to try
something new and that gave them a lot of confidence to move ahead and
establish a business model."
That business model, which was
largely based on the iMode idea, was promulgated in a White Paper in
November 2000. When China Mobile called together a group of 100
Internet Content Providers to announce their Monternet initiative, most
couldn't believe what they were hearing. Here was a former
state-owned monopoly with some 54 million subscribers announcing itself
not as a competitor, but as a partner to companies of all sizes. Beyond
that, after years of trying and failing to get consumers to pay for
Web-based data services, it was telling these battle-scarred companies
that it would not only give them 85 percent of the revenue for each SMS
their services generated, but it would also take care of the billing.
"I don't think anywhere else in the world you have a
system that is as convenient or efficient," says Mark Begert, CFO
of Linktone. "Particularly in China where there's no credit
card penetration. Which is why Monternet is such a perfect fit with
this country, because it's very difficult to get users to pay for
these type of services with any way other than their mobile phone
bill."
An Industry
Re-incarnated
In the 18 months since Monternet was
launched, China has witnessed the birth of an entirely new industry
whose players are now offering everything from stock market updates to
location-based services to downloadable World Cup icons. In 2001,
China's total SMS traffic amounted to 15.9 billion SMS messages, of
which 10 percent were billable by MSPs. For 2002, the figure is
expected to reach 30 billion, with MSPs share rising to 20-25 percent.
And as the industry grows, even greater changes are expected.
Consolidations are already starting to happen and many small companies
are barely hanging on. Rumors also abound of Monternet moving toward a
self-branded iMode system replete with favored providers and, quite
possibly, a much bigger slice of the revenues for Monternet itself. What
makes MSPs particularly nervous is that Monternet is both a member of
the value chain and the promulgator of the standards and practices for
all players.
"You're going to see big changes, as you
will in any industry that's gone through its initial growth
spurt," says Arthur Wang of 698 Capital. "But let's not
forget that this was a great idea to start with - that it not only
enabled an entire data services industry to emerge in China, but that
it's actually catalyzing the rollout of GPRS and 3G, which are
going to take this industry to even greater heights. After all, if 3G
is about anything it's data - and in that universe there's
only one way for operators to differentiate themselves from their
competitors, and that's with the quality and choice of services
they offer."
Eric Ransdell is the
former Silicon Valley Bureau Chief for US News and World Report
magazine. Now living in Shanghai, he covers mobile technology in
Asia.