SP Development In China Mobile Value-Added Market, Q1 2007

According to the statistics of Ministry of Information Industry, the number of China mobile users has reached 480 million, and mobile phone penetration rate has come to 35.3 units/ 100 persons by the first quarter of 2007. In fact, all China mobile users have become mobile value-added service consumers due to their passively receiving mobile short messages.

China mobile value-added service market has kept a rapid growth since 2001, and the scale has achieved RMB 82 billion by the end of 2006, up by 79.4% over 2005. It is going to keep rising in 2007 but the growth rate is to slow down because of increased cardinal number and more rational investment.

As the communication expense is exclusively acquired by mobile operators and around 15% of message fee also belongs to operators, so most income from mobile value-added services is pocketed to them, while only small part of the income is left for SP. Even though, SP can still make enough profits thanks to the enormous market scale.

In the second half of 2006, China Mobile and China Unicom put forward some negative policies which resulted in China's wireless value added market to decline, i.e. canceling customizing short message by piece, adopting re-confirmation and extending free period, clearing up WAP inactive users and prohibiting cross marketing in IVR field. All these policies brought professional SP represented by TOM and Kong.net destructive strikes and their 2006H2 operating revenues experienced plunge; while Sina and Sohu saw slight declines in SP business by transferring risks and changing marketing strategies.

Impacted by operator and government policies, SP's 2007Q1 operating revenues still fell down compared to the same period of last year but rose over 2006Q4, which mainly benefited from the Spring Festival holiday activities, and indicated that, meanwhile, SP managed to get out of the depression.

In 2006, 90% of China mobile value-added service market went to mobile data value-added services and 10% was left to mobile voice value-added services.

2G business including SMS since 2007 will still see huge potentials. SMS takes a gradually smaller share of total mobile data service in revenue, but SMS portfolio will continue to grow steadily. Meanwhile, some other voice services like CRBT and IVR are expected to grow increasingly popular and become the crucial driver of increase of revenue from mobile value-added services. As 3G gets unveiled in 2007, wireless recreation services with higher requirements for network band width, such as handset network game and music downloading, will develop at a good pace; wireless recreation service is to turn into the biggest highlight. In particular, handset network game will, after finding a solution to the bottleneck of band width, witness a rapid growth and its user scale is expected to increase largely. Besides, impelled by mobile operators, such services transplanted from Internet as instant message by cell phone, mobile phone e-mail box and wireless search can have a fast development; application fields of mobile payment and mobile positioning are set to be constantly extended.