Communications & Networks

CCID Consulting's data shows revenues from China's Internet industry reached 116.32 billion Yuan in 2007, growing over 30%. According to the CNNIC (China Internet Network Information Center), China's Internet subscribers reached 253 million at the end of June 2008, making China the largest Internet subscriber base in the world.

However, for China's telecom operators, their success in value-added Internet services has been lackluster at best. Telecom operators have been watching Internet developments closely. In May 2005, China Telecom launched V-Net in Guangdong, a first attempt at Internet value-added application service. However, available free service offerings have limited V-Net's success. Free video websites, for example, offers readily available sharing and low copyright risks.

In short, fixed-line telecom operators are unable to control and capitalize the user in the open Internet value chain where there are many players. These players can develop Internet services that establish close relationships with users, bypassing the telecom operators as ISPs. In China, Sina, Tencent, Baidu, Shanda, Alibaba, for example, have dominated Internet service areas such as in portal websites, instant messaging, search engines, online gaming, and e-commerce, respectively.

After the telecom restructuring earlier in 2008, new opportunities will arise for China's transformed telecom operators, and the key opportunity will be enabling these operators to improve user loyalty in new ways. Telecom operators will be able to own 3G, full service operating licenses. CCID Consulting recommends the following to operators:

Leverage existing strengths to provide services around mobile Internet.

As convergence of IT and telecom enters mobile communications, telecom operators will have a new chance to offer Internet value-added services. Mobile Internet should be the core of all telecom operator services and Internet services will be a most important growth point. Telecom operators will have more control by virtue of its position in mobile phone service, and operators can leverage its existing advantages in user number, capital, and brand.

Offer fast, broadband services.

Broadband adoption in China is still relatively low. This provides another window of opportunity for telecom operators, which can be one of many value-added Internet services to offer. Because of low adoption rates, broadband also offers large growth opportunities as well.

Don't compete with entrenched players; look for new, specific areas of value-add.

Competing with Tencent in instant messaging, or Sina in portals, would simply not make sense. Instead, telecom operators should take their existing strengths and partner strategically with other IT vendors to serve unmet needs to achieve win/win results:

• Family oriented content, such as education and health care. Telecom operators can provide customized services in cooperation with local schools, hospitals, and other public resources, thereby attracting household users.
• Local websites. By virtue of its branch presence across China, telecom operators can provide local websites and local content that pinpoint the informational needs of a given locale.
• Secure Internet surfing environment. Provide a trusted environment that includes built-in, online set of tools such as anti-virus, which users can go on the Internet with confidence.
• Vertical industry search and e-commerce. Provide such services in industries not yet addressed, and incorporate seamless billing functions which telecom operators already have.
• Specific segment of user. Provide a set of services targeted to a specific, unmet user segment, such as China's senior citizens.

For more information

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

Ó 2008 CCID Consulting Co., Ltd.