2006 Annual Report on Mobile Customization of Operators in China

Findings and Recommendations Analysys' Findings
The sales of custom mobile reached 12.50 million in 2005. The sales of custom mobile of operators in China reached 12.50 million in 2005, accounting for 15.8% of the sales of mobile terminal. The market size of custom mobile will continue to increase in 2006.

Purchase of custom mobile by China Mobile and China Unicom exceeded 20 billion Yuan in 2005.

Purchase of custom mobile by China Mobile and China Unicom exceeded 20 billion Yuan in 2005 and involved over 18 manufacturers. The purchase will continue to increase in 2006.

The competition structure of mobile customization of operators tends to be stable. Custom mobiles concentrate on certain brands.

Cooperative manufacturers of the operators for mobile customization are set. China Mobile and China Unicom cooperate mostly with overseas manufacturers. Most custom mobiles of China Mobile are popular model of overseas brands.

With the rapid development of market size of value added mobile service and fierce competition in 2005, the marketing strategy of mobile operators will change from “focus on products” to “focus on users”.

For those simple and fundamental mobile services, such as speech and voicw services, operators will provide differentiated service for the target users at earlier stage of 3G. And for those complicated data business and industry and public applications, 3G can better satisfy diversified user needs.

Functions of custom mobile of operators cooperate closely with their promotion strategy of value added service.

Custom musical mobile of China Mobile, custom World Wind mobile of China Unicom, and criterion of custom mobile are the embodiments.

Mobile customization of operators cooperates closely with their brand strategy.

The positioning of China Unicom changes from high end to the public. The customization of low end Hicsma indicates its attention to low end customization. China Mobile also customized a lot of low end mobile in 2005 to explore low end market.

Operators strengthen its own sales channel of custom mobile as well as channels cooperation.

After China Mobile founded Topssion and China Unicom founded Unicom Huasheng in 2004, these two operators adjust channel strategy and attach importance to cooperation with other social channels, even cooperation with manufacturers and channel vendors, such as cooperation of musical mobile customization among China Mobile, Suning and SonyEricsson in 2006.

Analysys' Recommendations
Recommendations for operators
Focus on users in marketing

Take into account the promotion strategy of new business and user’s consumption features, understand the developing trend of user needs on terminals and businesses; provide free experience of new business and foster customer’s consumption habit; change old marketing methods which stress single technical product, attract users by content and application, and draw users close to new business.

Further cooperation in industry chain Conduct further cooperation with long-term and stable SP/CPs which have the advantage of complementary resource, as well as traditional content providers, equipment manufacturesr and platform providers. Develop the original buying and selling relationship into cooperation of support, subsidy and joint venture in order to consolidate resource advantage and industry chain.

Attach importance to the role of mobile customization in promotion of value added service. Strengthen the dominant position of mobile communication industry chain.

Develop content resource actively and make full use of resources of value added service providers and content providers. Strengthen the management of SP/CP. Maintain their leading position with the development of custom mobile and have terminal vendors cooperate closely with them in develoment of terminal.

Attach importance to the role of social channels in promotion of custom mobile

As China has vast territory and vast number of users, the channels that operators build and control can not cover all the users, especially users in medium and small cities. With the expansion of mobile customization market, the channels that operators build can no longer satisfy the large sales of mobile terminals. Operators should pay attention to the resource of social channel.

Attach importance to the business opportunity of industry customization

Understand the user needs of industry and enterprise customization. Explore new business mode and conduct further cooperation to develop the market. Industry customization users are operator’s main high end users. Meet the needs of industry users and develop relevant market will bring the operators considerable revenue.

Supervise market competition and promote reasonable division of work in industry chain.

As 3G license will be issued at the end of 2006 and preparation must be made for the business use of 3G, vendors in the whole industry chain is making adjustment to seek development. Supervise market competition and adjust dividend proportion of SP/CP business, so as to promote reasonable division of work in industry and consolidate operator’s dominant position.

Adjust terminal customization mode
Presently mobile operators adopt the serial end-to-end development mode. Terminal is the last link of business development and support, which make terminal products lag behind new business products. Therefor, operators should optimize the development mode of terminal and synchronize terminal customization with business development.

Recommendations for terminal vendors
Understand operator’s brand marketing strategy for different market segmentation

Custom mobile of China Mobile targeted at middle and high end users in 2005, while China Unicom maintained high end custom World Wind mobile and increased low end custom mobile. With their terminal products of high acknowledgement in segmentation market, terminal vendors can cooperate with operators in data business and win operator’s favor.

Understand operator’s development strategy of value added service, and seize the first opportunity in customization market

With the increase of scale of mobile operator’s custom mobile, terminal vendors need to follow operator’s development strategy of value added service, meet operator’s requirement on products, increase consumer’s acknowledgement of mobile terminal and value added mobile service, and build good brand image. Also, terminal vendors need to grasp operator’s product development strategy for 3G and seize the first opportunity in customization market.

Intensify cooperation in business development
Terminal vendors should intensify cooperation with operators in business development and promotion. They should combine the development of new business and new model of mobile, and intensify operator’s influence on the design of mobile terminal product.

Foster customer's consumption habit
Presently, mobile customization of operators target at certain user group. Their product design and value added mobile service have relevant target users. Foster customer's using habit according to mobile operator’s mobile models for target user. Leading customer's using habit is important for terminal vendors to exceed other competitors.

Understand operator’s strategy of large customers service
The market of industry customization is still small and market competition is not fierce. Presently the competitors are mainly small vendors with high research ability. Terminal vendors should understand operator’s strategy of large customer service and find opportunity to enter the market.

Marketing cooperation
Terminal vendors should strengthen cooperation with operators, terminal system manufacturers and key parts manufacturers. They need to improve user experience and satisfaction, reduce marketing cost, and make use of operator’s influence on industry chain to increase sales and user satisfaction and win order from operators.

Recommendations for channel vendors
Consolidate cooperation and participate in marketing plan. Operators copperate with terminal vendors to supplement their own channels. Although mobile operators build its own channels, presently they still rely on social channels for sale of custom mobile and promotion of value added service. Increase of sales of custom mobile requires the support from current channel vendors to make use of their advantages in channel construction, flow of materials and after-sales service, such as cooperation of China Mobile with Telling.

Control user resource
In order to consolidate competition advantage and increase social channel’s enthusiasm for custom mobile, China Mobile will complement with channel vendors in resource through cooperation with terminal vendors and channel agent. Channel vendors will get dividend from value added service for custom mobile. Channel vendors with great influence and control on consumers have more bargaining power in such cooperation. One typical example is nationwide chain stores of home appliances, such as Gome and Suning. Therefore, better control of user resource will bring channel vendors new opportunities.

Improve user experience and user satisfaction.
Operators customize mobiles in order to increase user’s acknowledgement of data business and brand, explore user market and foster high end user's consumption habit of data business. Therefore, channel vendors should improve user experience, acknowledgement and satisfaction, help operators with brand marketing. User resource will increase channel vendor’s bargaining power with operators.

Recommendations for value added service providers
Strengthen cooperation with operators and pay attention to the development and promotion of new business.

With the new cooperation mode that promotes value added mobile service by custom mobile, SP/CP should not only strengthen cooperation with operators and buyers of value added service for custom mobile, such as Topssion, but also advance the promotion of new business and help operators develop new services.

Integrate excellent SP/CP resources and expand market coverage. Integrate excellent value added service of SP/CP through operator’s mobile customization. As different SP/CPs have their own user groups, they can penetrate their business to new users through the build-in experience of different services, and achieve a win-win situation.

Increase market influence and avoid being submerged under the brand and influence of operators.

While increasing its revenue of value added service through operator’s mobile customization, SP should pay attention to the particularity and distinguishability of its products, develop value added service products of its own features, set up their own brand, and avoid being submerged under the brand and influence of operators and degenerate tocontent provider.

Adopt the policy of ""collections"".
There will be more and more SPs and products. Only collections can attract user’s attention and improve user stickiness. Also at the early stage of business promotion, the policy of “collections” can help them set up their own brand in a short period of time and win their seats in this industry.