
Phone @ MindSay 
It is more possible to become a stable, low-growth market. Therefore, it's no use being hasty.
[+] Will the advent of 3G lead to a reshuffle of WAP market?
Despite continuous setbacks since 2000, telecom operators have never stopped efforts in the mobile Internet market. Theoretically, Moternet, the WAP portal of the largest mobile operator in the world, China Mobile should have the heaviest traffic volume in the world. After all, it has such a huge subscriber base. This, however, is not the reality.
From an iResearch report, Handset-enabled Internet Activities in China in 2008, we can see that Sina, Baidu and Tencent are among the most visited WAP sites in China. There are even a few independent 3G WAP portals. Thanks to their huge PC-based user bases, traditional Internet players seem to have a chance to challenge telecom operators.
Will the advent of 3G lead to a reshuffle of the market? Despite the fierce battle for subscribers, New China Mobile, New China Telecom and New China Unicom have not changed their visions of transforming from "communication service providers" into "information service providers". Key to this effort will be WAP. Will other WAP sites score another goal along with the promotion of 3G?
What we might not have understood correctly is the fact that, with the advent of 3G, the WAP market might have a stable and slow growth, instead of a sweeping revolution. Therefore, it's no use being hasty. It seems that, at the present time, the conditions for a sweeping revolution are not yet in place.
[+] The development of the WAP user base is a long-term process
First, if the 3 new operators do not offer substantially lower WAP rates, there would be no momentum for WAP users to upgrade to 3G, as no major change is expected to the contents offered by WAP sites. There might be more video and mobile TV services, but the key to the acceptance of users is still the fee rate.
The problem is that only telecom operators could decide the fee rates. Other Internet players have no say in it. In view of the current competition picture, the operators are expected to cut 3G WAP fee rates to some extent. But as I said, only substantial cut in voice fee rates could significantly increase the 3G user base, which is essential for a sharp increase in 3G WAP user base.
Secondly, does a substantial increase of 3G user base mean the same for WAP user base? Experience of telecom operators indicates that a large portion of the first 3G mobile phone subscribers would be WAP users of the 2G time. In other words, as a 2G WAP user becomes 3G WAP user, there would be no increase in the total WAP user number in the market.
In the long term, with intensive 3G promotion efforts of operators, all users will eventually give up 2G (whether voluntarily or forced to do so). The process, however, might not be as fast as you and I have thought. Considering the WAP service, which might be offered as an accessory service, the development of the WAP market could be even slower. The key to the speed of growth is the fee rate, not the number of Gs.
[+] The pain in business models
Why have telecom operators not been able to make good WAP sites? Based on my 5 years of experience in an operator, I could see that the root of the problem is their business models. For telecom operators, there's no free service. Every service should generate revenue, which ideally should be collected from end-users with phone bills. One dollar from each user would add up to an amazingly large amount for the hundreds of millions of income.
WAP services are duplicates of those of the Internet, whose basic business model is to offer free service and gain revenue from advertising. Sharp conflicts are expected for the business model transformation, not to mention the difficulty of changing the mindset of staff in a short time. Telecom operators need to regard themselves as media players before establishing ad departments to gain ad revenue. For them, that's too much.
This business model would have nothing to do with the number of Gs. For WAP, if the business model were transformed to that of media in the 2G time, Monternet could have done it very well even without 3G. Now we are back to the basic question: which is scored "better", higher ARPU or advertising income? If the former, there will not be any change.
It does not mean that telecom operators have to give up fee-based music or image download services, which are, in fact, the revenue sources of the traditional Internet companies, too. Yet, if operators cannot think of anything else, their business growth would be limited. For example, Nokia is seeking cooperation with telecom operators even as it has its own advertising network.
Why didn't operators make the proposal first? Because they are still using the old mindsets. Any business you don't do, somebody else in the business chain would do. Nokia Advertising Network is a manifestation of the company's resolution to transit from the manufacturing industry to the service (particularly the Internet service) industry. Do New China Mobile, New China Unicom and New China Telecom have the same resolution?
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Prev : New Landscape in China's Telecom Market (7) The Pricing of 3G Value-added Services
- Today in History
New Landscape in China's Telecom Market (8) WAP Sector Is Slowing Down - 2008/08/10
PDA in Siege (1) The Attack of Notebooks - 2004/08/15
As a matter of fact, each of these operators has more than 100 million subscribers to deal with.
[+] Are there bystanders in the 3G market?
One interesting question: is it possible that, having obtained their 3G licenses, the 3 new operators, i.e., New China Mobile, New China Telecom and New China Unicom all choose to postpone the launch of their 3G services, and wait for the response of the market? After all, migrating existing GSM or CDMA or PHS subscribers to 3G proves to be a huge workload, and might trigger a price war if not dealt properly.
In April 2007, I analyzed 4 possible market accessing strategies of 3G operators with a chart titled "Market Strategies of 3G Operators". As a matter of fact, each of these 4 strategies has been used by telecom operators around the world. Which is the best depends on the competition situation among local telecom operators, as well as standards they adopt.
Most operators planning to postpone the launch of 3G services would adopt strategy C, i.e., starting by providing internet access service only. With base stations mostly located in cities, these operators primarily sell PC data cards to business people to enable Internet accessing for notebooks.In suburb regions, where 3G signal is not available, services will automatically roam to the original GSM network. So the operators will not provide 3G mobile phone and voice services in the initial stage.
Operators adopting this strategy have a number of common identities: 1) they are market leaders with strong brands, and not afraid of rival operators trying to snap market shares away from them with 3G services. 2) Their 3G infrastructure development tends to be slow, with signals capable of covering only urban areas at the beginning. Business people do have requirements for mobile internet, but they care even more about the quality of voice communication. Therefore, the limit signal coverage for the voice service in the initial stage would offend them.
[+] Maybe everybody is a bystander
The one that's most likely to adopt the above tactics is New China Mobile. In view of the heavy workload of migrating hundreds of millions of subscribers to TD-SCDMA, and the possibility of revenue decline, it pays to be careful. Anyway, nobody has experience in TD-SCDMA. With confidence in the brand, many subscribers would rather wait for New China Mobile's 3G services than switch to other operators.
Therefore, New China Mobile might well be a bystander at the initial stage. Although 3G is a more advanced technology, it is hard for ordinary consumers to tell the difference from 2G (I have a 3G phone myself, but I use it only to make phone calls and send/receive short messages). Therefore, it would be hard to persuade them to switch to 3G in the initial stage.
Should other operators take the advantage of the time window in the 3G voice market left by New China Mobile to introduce their own services? Should they launch attacks with 3G systems and infrastructures that are more mature and easier to deploy, as well as 3G handsets and more affordable fee rates? Or should they join New China Mobile to adopt strategy C and be a bystander in the initial stage too?
There's one factor they must consider when selecting their competition strategies: where will their 3G subscribers come from? In our view, the 3G subscribers will come from: 1) their own 2G customer base; 2) the 2G customer bases of other operators; and 3) people who have never used a handset. The experience of 3G operators in Japan indicates that, for any 3G operator, most of the 3G subscribers would come from its own 2G customer base, with only a small portion from rival operators.
[+] The speed and the fee rates are the key
If operators do intend to migrate their 2G customer bases to 3G, there would be a peaceful market in the initial stage. As each operator is engaged in migrating its own 2G subscribers to 3G, no one would bother to launch an attack before it has had a strong foothold in the market.
As a matter of fact, each of these operators has more than 100 million subscribers to deal with. The one who completes all this first would take the lead in launching an attack. Therefore, the key to success would be speed, nothing else. Despite the strong brand of New China Mobile, which allows it the luxury of more waiting time, subscribers are realistic and impatient. They would switch to any other operator that offers the most favorable terms.
To retain existing subscribes and launch an attack toward other operators, the fee rate packages for voice services would be a powerful weapon. The advent of 3G has led to the emergence of a number of call modes: including 3G-to-3G and 3G-to-2G. As there are 3 different systems for both 3G and 2G, the situation could become more complicated. For example, a 3G subscriber of New China Telecom would call a 2G subscriber of New China Unicom.
With such a complexity, a compelling fee rate package would be helpful to retain and migrate existing subscribers while attracting new subscribers from other operators. As to whether it would reduce the revenue of the operator, there's no guarantee. Anyway, 3G is not something intended to help operators earn more.
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Prev : New Landscape in China's Telecom Market (3) Who's Gonna Be the Price Killer?
Next : New Landscape in China's Telecom Market (5) Fee Rates of 3G Services
- Today in History
New Landscape in China's Telecom Market (4) Dealing with Existing Subscribers is Key - 2008/07/06
Ultimate Mobile Device (3) Video, Storage, Copyright Management - 2005/07/03
Many telecom practitioners believe that mobile phone will become the "fifth media" in the age of 3G. But that won't come true without telecom practitioners' intended guiding.
[+] Looking for killer application
Is there any kind of service that can attract large group of existing 2G customers to upgrade to 3G? If this is the so called killer application, it barely exists for telecom operators, because no application can help them to rapidly attract a lot of 3G subscribers.
Many killer application services of this kind have been tried by 3G operators all over the world. For example, the European Hutchison Telecom who started to operate 3G many years ago mainly promoting video phone and mobile email services at the beginning. However, the growth of subscriber number was extremely slow.
In short, from the perspective of telecom operators, the only killer application to rapidly obtain 3G subscribers might only be the "lower voice service calling rate". For consumers, that is a simple and clear reason for using 3G. Once they use 3G phone numbers, they will start to use its value added services.
I joined one of large 3G operators five years ago and started to do 3G market planning. I used to hold high expectations on value added services. However, as time went by, I found out that there was no big difference between 3G and 2G (especially GPRS) value added services.
MMS and WAP have already been realized on 2G, not to mention SMS. Even the hot Instant Messenger (IM) service can also be realized without 3G. Those won't become the reasons for consumers to upgrade to 3G services.
The advantage of 3G is its speed that is faster than CDMA and much faster than GPRS. However, it is not enough to bring an essential difference, because consumers can hardly feel any speed difference when browsing WAP on the small screen of mobile phones.
[+] The possibility of the fifth media
There is an embarrassing situation for sales people. Imagine that if you are a sales person of a telecom operator, when you try to persuade a 2G customer to upgrade to 3G, you fail to answer the customer's question when asked "what's the major difference between the two services?"
The reason why 3G fails to attract a large number of subscribers through its value added services is that there is no major difference from 2G. The only difference: speed, however, is hard to be felt by consumers immediately. After purchase, customers usually will have only a slight feeling after some time. How can we sell this kind of product?
Eventually, our hope inevitably falls on several services that show evidently the speed of 3G: video telephone, streaming media and download. Applications including mobile TV, video on demand, music download, which consume large bandwidth can reflect the difference of 3G more evidently.
However, will consumers upgrade to 3G just by telling them that they can watch TV and listen to the music on 3G phones? Yes, they will. Some technology manic or first adopters will be tempted to upgrade to 3G. But those people only hold a very small market share. Most people will tell you that it seems to be never used to watch TV on the mobile phone.
Especially when they find out that the price plan of watching TV on the mobile phone is calculated by time, they will resist more apparently. The billing model that is quite natural for telecom operators (for example, billing in seconds) drastically violates the general payment habit for TV services: free or paying monthly.
Many telecom practitioners believe that the mobile phone will become the "fifth media" in the age of 3G. But that won't come true without telecom practitioners' intended guiding, especially with regard to the price plan. Monthly unlimited mobile phone TV service itself will arouse drastic arguments inside telecom operators.
[+] The way to survival for free WAP sites
It has been spread for a long time that telecom operators will act against free WAP sites. Each time telecom operators carry out a new policy, this topic is heated up again. Especially recently it is said that telecom operators plan to set the rates of their own WAP sites to be different from those of external WAP sites.
It is the common practice for telecom operators all over the world to "design and enrich their own WAP sites, keep users in their own walled garden, and make content providers bend their knees". Although free WAP sites are very hot, they fail to keep from telecom operators' threat.
To be honest, there is no relation between that market situation and 3G. I don't understand why some people think that such obstacles will disappear after China's entry into 3G. Telecom operators always keep their leader's attitude and control over subscribers and content providers regardless of 2G or 3G, don't they?
However, there is probably a market breakthrough point here. Never forget that China has a self-developed standard TD-SCDMA. Telecom operators who have obtained this license are relatively less aggressive (or will become so after suffering from market stagnation). It is possible for free WAP to collaborate with them.
Telecom operators' practice on WAP is called "The Walled Garden" in the industry. Users can enjoy enriched content services within the garden, but they can never go outside. The more powerful telecom operators are, the more they want to do so. Cooperation can only start from relatively weak operators.
The next phase of development is quite obvious for SP (Value Added Service Provider) or CP (Content Provider) and free WAP site operators. For example, videophone dating, mobile phone movies on demand or download, live music or download, etc. The content is becoming more and more important. As a result, many SP have started to integrate resources from the media.
[+] Conclusion: It's true that telecom operators will beg consumers to use 3G
My insights of 3G telecom services in the past four years can be concluded into one sentence: it is true that telecom operators will beg consumers to use 3G. Because there is no obvious difference between 3G and 2G, while the major difference can not be experienced immediately, the sales of 3G are very difficult.
The difference can only be experienced after a period of usage. However, sales people can barely wait users to gradually find out the difference, because they can not bear the slow sales progress. Thus, they are forced to attract users to upgrade to 3G with lower voice service calling rates first.
But users are more accustomed to use value added services on 3G than on 2G. Therefore, the fifth media is expectative. The point is whether telecom operators invest resources on user experience and services, and whether the design of rate plans fits in with users' expectations.
Finally, the key user group of 3G is labor workers in big cities in addition to residents (primarily students) in second-tier cities in China. Those people will bring large amount of WAP and streaming media usage. Of course, the elite people are the sales target, too. But the total amount of elite users can barely meet the demand of telecom operators.
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Prev : The Mist of 3G in China (3) Low-End Customers Are King
Next : Web 2.0 Think Again (1) It's All about Relationships
- Today in History
The Mist of 3G in China (4) The Way to Survival for SP - 2007/04/22
Predictions on China Internet Market (8) War of Instant Messenger - 2006/04/23
3G Time Comes (7) 3G Is Nothing to Do with WLAN - 2003/04/27
3G Time Comes (6) Phones Don't Need to Be Smart - 2003/04/20
It's not wise for telecom operators to sell 3G only to the elite who are extremely small groups of the billion populations.
[+] The first stage of 3G in China
The previous articles by me are not to look down upon 3G value added services or to support the voice service. Instead, I am trying to point out that telecom operators are industrial leaders, what kind of strategies they will take on 3G decides in what kind of strategic thinking value added services will be placed.
An SP (Value Added Service Provider) probably can live on 3G with only millions of value added service users. However, for a telecom operator, it is far from enough if the number of subscribers attracted from value added services (which are the primary selling points of 3G) is just the same. The two points of view are different.
However, it is the general atmosphere to hold high expectations on value added services in China's 3G market. Including telecom operators, there is a stir of emotions in related industries including SP, CP (Content Provider), and even the Internet industry.
The common opinion is, in such a big market, not only can we define system standards, but telecom operators are also able to define mobile phone specifications. According to the successful 3G development experience in Japan and Korea, customized mobile phones can increase telecom operators' revenue by optimizing the user experience with value added services.
Therefore, at the first stage of China's 3G market, we will see a lot of TV ads promoting value added services, telling you that you can watch movies, listen to music, play games and access the Internet anytime anywhere via 3G.
With TV commercials, you will see the elite image of a middle-aged man in a nice suit that has a successful career holding a 3G phone; the cool image of young people watching movies or listening to music on 3G phones; or the touching image of family members seeing each other from the video phone.
[+] The second stage: use the voice service as the bait
The four telecom operators who will have obtained 3G licenses will boost value added services to a considerable height. As previously stated, operators who obtain WCDMA and CDMA licenses are based on the best interests of their own. While the operators with the TD-SCDMA license do so just because they do not want to believe their doomed fate.
With multi-functional and high-price mobile phones (probably the customized mobile phones provided by telecom operators), low-price data service rate plan (the voice service rate remains the same with 2G) and the TV ads promotion, 3G service will immediately attract a group of customers through its eye-catching value added services.
These users are just like the characters in the TV ads - business people and young white-collars. However, the number of that user group is limited and increases slowly. When the stacked mobile phones and value added services can't win more 3G subscribers, the loss from the price reduction of handset together with the telecom equipment amortization charges will drive operators mad.
Shortly after, the price war of voice service rates plans and mobile phones will start. The reality will stop us from dreaming. Do not forget that there are hundreds of millions of mobile phone users in China. Most of them are not elite or young white-collars. They don't want to understand 3G. What they want are immediate benefits.
But have 3G value added services been sentenced to death? No! The fact is that those 3G users attracted by the low voice service calling rates use value added services a lot! I conclude the 3G telecom operators' actual operating experience in the past four years as below:
- It's much faster to attract 3G users by offering low voice service rates plans than promoting value added services.
- To make up for the revenue loss from the voice service, operators have to highly invest on value added services.
- Even those 3G users attracted by low voice service rate plans will use value added services a lot.
- The premise is that user experience with value added services must be made good. Some degree of handset customization is inevitable.
[+] The outlook of China's 3G market
China's 3G market will show several features:
1) The 3G mobile phones with simple functions. Fully functional 3G phones may mean higher prices, especially for the TD-SCDMA system. To be simplest, a mobile phone that can make phone calls and support WAP is enough. Other functions such as camera, video, etc. can be left out at the initial stage.
2) Promote packages of low-price mobile phones and cheaper voice service rates plans (of course, WAP service rate is the key point as well), leading to a situation of rapid sales at cheap prices. It was difficult to do so several years ago, because the cost of 3G phones was still high and price reduction meant that telecom operators had to pay a lot of subsidy.
But when China's 3G market starts, the cost of WCDMA and CDMA 3G phones will be largely reduced. Bulk purchases by telecom operators will make the price even lower. With the help of smuggled mobile phones in this market, it is not difficult to buy cheap WCDMA and CDMA 3G phones.
3) Rapid sales at low prices means that 3G users will quickly turn to low-end customers, who are different from the elite or young white-collars in our imagination. Users of 3G value added services at this stage will be workers in big cities in addition to residents (primarily students) in second-tier cities.
Those people's standard of living is relatively low, so they can not afford high-end entertainment. They spend a lot of time in Internet cafes because that is the entertainment they can afford. Those who don't go to Internet cafes will use mobile phone WAP. They are willing to pay for value added services because a single mobile phone can meet their demands for communication and entertainment at the same time.
They are the primary users of 3G value added services, even though they adopt 3G services just because of the cheaper voice service rate plan! This is the outlook of China's 3G market in my expectation. It is not wise for telecom operators to sell 3G only to the elite who are extremely small groups of the billion populations.
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Prev : The Mist of 3G in China (2) TD-SCDMA is a Hot Potato
Next : The Mist of 3G in China (4) The Way to Survival for SP
- Today in History
The Mist of 3G in China (3) Low-End Customers Are King - 2007/04/15
Predictions on China Internet Market (7) Web 2.0 Economy - 2006/04/16
How to Sell an Apple: A Classic Case of High-tech Marketing - 2005/04/10
3G Time Comes (5) Content - Killer App of Video Phone - 2003/04/13
Will we have a price war of voice service? The determinant is the persistence toward China's self-developed 3G standard: TD-SCDMA.
[+] 3G promoting model that best suits the benefit of 2G telecom operators
Let's look back to the competition strategies of telecom operators in the 3G market (figure shown as below). In conclusion, for those telecom operators who already have GSM or CDMA 2G subscribers, the most beneficial tactics for them are as below:
- Focusing on the deployment of 3G base stations on metropolitan areas, and doing small-scale deployment in suburban or rural areas at the beginning. Because WCDMA or CDMA 3G systems are easily compatible with 2G, subscribers can roam seamlessly on the 2G network in those areas where no coverage of 3G signal is available. Therefore, the cost for telecom operators is relatively low.
- In order to ensure that revenue is not affected when the existing 2G subscribers upgrade to 3G systems, operators will set the 3G voice service calling rate the same as or similar to 2G. Since this part is still the primary revenue of telecom operators, it won't affect much even if their 2G subscribers transfer to their own 3G systems.
- Because the voice calling rates of 3G and 2G are similar, the price plan for 3G mobile Internet service (data service) is largely reduced in order to differentiate from 2G as a selling point. Operator focus on the promotion of value added services together with multi-functional high-end mobile phones, targeting the metropolitan white-collars with higher incomes.
- Since the increase of 3G subscriber base is relatively slow at the beginning, the market will gradually expand to suburban or rural areas, 3G base stations spread to those areas and the price of 3G phone reduce. To prosper sales, telecom operators will consider to offer packages with reduced voice service calling rates.
Here comes the question, if as stated above, telecom operators who already have 2G subscribers do not hurry to sell 3G by reducing the voice service rate, how come the price war happens in China's 3G market? The determinant is the persistence towards China's self-developed 3G standard: TD-SCDMA.
[+] Is TD-SCDMA a killer or a lamb to be slaughtered?
The European 2G operators were not so familiar with the above concepts when they first obtained their 3G licenses. But as time went by, they more and more adopted the above concepts towards 3G. Almost all of them took the strategies in B, C and D segments when they started to promote 3G.
Even Hutchison Telecom, the so called "pure 3G system" who had no 2G subscribers, believed that value added services were the shining points of 3G. They tried to attract consumers with high-end mobile phones and various value added services when they started to promote 3G. But they encountered the dilemma of slow increase of subscribers.
Because of their "pure 3G" feature, the deployment of base stations had to start from scratch and was not able to be very comprehensive. Therefore, even the signal coverage in metropolitan areas was not good at the beginning. Consumers attracted by TV ads regarding 3G value added services bought 3G mobile phones. However, their complaints about the unstable signals did not work at all.
Afterwards, Hutchison signed roaming contracts with other 2G operators, allowing subscribers to roam on other operators' network when there was no 3G signal coverage. In order to obtain more subscribers, Hutchison started to promote by reducing the voice calling rate together with low-price mobile phones (with the high cost of handset subsidies). The number of subscribers thus started to increase rapidly.
We learn a lot from Hutchison's lesson. In conclusion, "It is very tough for telecom operators who have no 2G systems or subscribers to promote 3G." Look back to China's market, who comes into your mind from the story of Hutchison? The answer is the ones who will have obtained TD-SCDMA licenses.
The system of TD-SCDMA is incompatible with GSM or CDMA. The deployment of its base stations has to start from scratch. The cost is huge if the same level of coverage as 2G is offered at the very beginning. However, consumers who have already been accustomed to the coverage level of GSM will not forgive "the poor signal of TD-SCDMA".
[+] Market competition will inevitably drive the price war of voice service
In China's mobile communication market, when asked "which telecom operator's signal is poor?" I believe you will speak out the name of some operator without hesitation. Consumers' impression is appalling. It is hard for telecom operators to change their images once they have been put on some labels.
Since the system is brand new, telecom operators with TD-SCDMA licenses will inevitably carry out a lot of system and terminal optimization work during the commercial operation. As an early 3G practitioner, Hutchison used to spend many years in optimizing its system. The process of optimization will strengthen consumers' impression of "poor signal".
These problems, however, do not all exist in WCDMA and CDMA2000 systems. There are lots of telecom operators working on these two 3G systems worldwide, who have accumulated abundant experiences. In addition, the global-scale production reduces the average cost of the 3G mobile phones of those two systems, so that they can be sold cheaper.
From the consumers' perspective, the signal would be poor, mobile phone would be expensive and there would be many bugs in the early stage of TD-SCDMA. Telecom operators would not be able to attract consumers rapidly, although they spend huge amount of investment at the beginning. Finally, it would become inevitable to provide low-price mobile phones without value added services and to promote lower voice service rates.
This is the reason of the price war of voice service during the initial stage of China's 3G market. The starters of the price war, however, are those telecom operators who will have obtained TD-SCDMA licenses. Operators with other 3G system licenses will not respond to the price war in the initial stage. But in the long run, it's difficult for them not to be affected.
The second mist of 3G in China: who is the first largest user group of 3G? Many people would answer without hesitation: "metropolitan young white-collars". Is it true or false? I will say: the answer is workers and students with low income in cities instead.
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Prev : The Mist of 3G in China (1) 3G Makes No Profit
Next : The Mist of 3G in China (3) Low-End Customers Are King
- Today in History
Great Changes in Wireless Internet Industry (4) Apple's Strategy - 2008/04/06
The Mist of 3G in China (2) TD-SCDMA is a Hot Potato - 2007/04/08
The Mist of 3G in China (1) 3G Makes No Profit - 2007/04/01
Predictions on China Internet Market (6) Community Services - 2006/04/09
Media, Community, and Blog (5) The Power of Media - 2005/04/03
3G Time Comes (4) Video Phone - the Killer Application - 2003/04/06
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