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The Chinese Telecommunications Market Presents Great Opportunities



Telecommunications Market

Overview

China's 11th Five Year Plan starts in 2006. In the coming five years, the Chinese
government expects the telecom service industry to grow at an average annual growth
rate of 10% and the revenue generated by the telecom service industry to reach USD 114
billion by 2010. Also by 2010, the number of telephone users is expected to reach 1,000
million and Internet users to reach 200 million. Telephone service is expected to be
available in each and every village in China by the end of 2010.

In 2006, China's Ministry of Information Industry (MII), the most important government
regulator in the telecommunications industry, projects that Chinese telecom carriers will
invest $25 billion to recruit 30 million fixed line telephone subscribers and 48 million
cellular phone users. MII expects the penetration rate of fixed line telephone to reach
29% by the end of 2006 and a penetration rate for mobile communications of 34%. It is
likely that the number of telephone users could reach 800 million by the end of 2006.
With such an investment, Chinese telecom carriers expect to generate revenues of $87.5
billion, 10% more than that in 2005.

Chinese telecom carriers continued their efforts in 2005 to try out the 3rd generation (3G)
of mobile communications technologies: CDMA2000, WCDMA and TD-SCDMA. The
Chinese government is holding back issuing 3G operating licenses for three main
reasons----1) a lack of a successful business model worldwide; 2) home-grown TD-
SCDMA is not yet mature; and 3) the expectation for lower royalty fees for local telecom
manufacturers. With the deployment of 3G communications network, the Chinese
government wishes to change the current market competition structure, in which
European and North American companies are dominant players and help local Chinese
manufacturers to gain a larger market share. On December 29, 2005, MII announced that
3G would be deployed in 2006.

Opportunities

Mobile Communications

The two current Chinese mobile operators, China Mobile and China Unicom, will
continue to expand their mobile networks in 2006 in a way that not only increases
network coverage but also gives flexibility to offer more data services to their customers.
They will continue to have great demand for base stations, switches, and network
optimization solutions.

The reported reorganization of the telecom industry before the issuance of 3G licenses
has been under discussion for one year. It is believed that there will be more than two
mobile communications carriers when China issues 3G licenses, possibly in the second
half of 2006. China's 3G market has huge potential for US companies selling telecom
hardware and services.

Value-added Services

Both Chinese fixed line and mobile telecom operators are changing their development
strategies. They are moving from infrastructure builders to service providers. They will
utilize their resources to not only build the infrastructure but also develop more services,
value-added services in particular, so as to generate more revenues and remain
competitive in the market. The Chinese consider any platforms, applications, or ideas that
can help increase revenue/productivity and enable offer customers differentiated services
attractive. They are increasingly open to partnerships with other service/solution
providers. For more information, please refer to "Telecommunications Service Market in
China" a http://www.buyusainfo.net/docs/x_8516024.pdf

Online Gaming/Mobile Gaming

Chinese fixed line telecom operators will continue to work with their business partners,
online gaming operators, and ISPs/ICPs, to provide online games and mobile games in
2006. The gaming content market is one that proves to be lucrative for foreign companies
that can provide localized and customized content. Online gaming/mobile gaming
developers can either work with the telecom operators directly or work with gaming
operators and ISPs/ICPs to market their games in China.

IP and Broadband

Chinese fixed line telecom operators, China Telecom, China Netcom and China TieTong
increased their input in IP and broadband infrastructure. In September 2005, the MII
approved China Telecom to conduct PC-to-Phone trials (which is SIP-based and known
in China as Web Phone Service) in Shenzhen city of Guangdong Province and Shangrao
City of Jiangxi Province, while China Netcom was cleared for trials in Changchun city of
Jinlin Province and Tai'an city of Shangdong Province. The fixed line operators may
seek to expand their services to more regions. Using their broadband infrastructure, the
telecom carriers would like to develop more services including IPTV, multi-party calling
and multi-media communications, etc.

Public Safety System

With increasing awareness of the importance of government's ability to deal with critical
situations, there is a growing demand for emergency response systems in China. Without
an organization like the National Emergency Number Association (NENA) in the United
States, China has not yet developed a national technical standard for its emergency
response system. At present, large and economically well-off cities in China like Beijing,
Tianjin, Nanning and Chengdu have started building public safety networks by
integrating TETRA-based digital trunking systems with their existing analogue systems.
The Chinese government requires all counties and cities to build their own integrated
emergency responding system by the end of 2006. Without investment from the central
government, local governments will have to either build a brand new system or upgrade
their existing system. Given their long-standing experience and know-how, U.S.
companies can expect strong demand for database software, interoperability consoles,
and data management systems.






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