China : CCID Consulting recently released its analysis on China's communications industry. 3G and business transformation are the keywords of China's communications market in 2007

With the approach of 3G, business transformation has turned into a realistic option for all communication enterprises. Operators, equipment suppliers, SIs and SPs are looking for new areas of business revenue growth. Under these new developments in technology, businesses and industry, operators who are the center of the industry chain have undoubtedly become the focus of business transformation. Various communication enterprises: both international and domestic, all take operators' business transformation as their starting point to research, develop and innovate their products and services.

Based on the summary of current status, characteristics and trend of business transformation and improvement in China's communication market, CCID Consulting considers that the current work is mainly concentrated in the following two aspects:

* Following TD-SCDMA, WCDMA and CDMA2000, the fourth 3G standard WIMAX has entered into the wireless communication competition. * Business drives operators' services transformation

Revenues in the telecom value-added services market are expected to top 160 billion Yuan in 2007

CCID Consulting forecasts by the end of 2007, revenues in China's value- added telecom services market are expected to top 160 billion Yuan, up by 33%. Mobile value-added business revenues will amount to 98 billion Yuan, accounted for about 61.25%. In 2007, a number of value-added telecom services enterprises will experience negative growth. The improvement of quality due to reduced enterprise numbers shows that China's value-added telecom industry market has entered benign development.

In the next three years, China's telecom value-added services market, particularly mobile value-added services, will maintain rapid growth. CCID Consulting expects that in 2008, the market size will maintain a growth rate of over 30% and top 200 billion Yuan. Mobile value-added business revenues will account for 70%.

Meanwhile, CCID Consulting's data show that for the whole 2007, China's industry-specific telecom market (not including telecom applications in the telecom industry itself) will reach a size of 18.68 billion Yuan, up 6.65% year-on-year, showing a trend of sustainable growth.

TD-SCDMA users in China are expected to reach 51.135 million in 2011

TD-SCDMA is undoubtedly the focus of China's 2G market in 2007. With the continuous improvement of the industry chain and the gradual maturity of technology, full preparations have been made for China's domestic TD before it goes into commercial use. CCID Consulting forecasts that after an introduction period of deployment in 2007 and 2008, TD-SCDMA will enter a peak period of deployment between 2009 and 2011. The number of TD users will grow rapidly and reach 51.135 million in 2011.

China's mobile phone market presents five major characteristics in 2007

After 5 years of fast growth, China's mobile phone market has entered a mature period. CCID Consulting forecasts that the sales volume in 2007 will reach 150 million sets, up 23.1% year-on-year, while the sales revenues will amount to 166.1 billion Yuan. Affected by the expanding market shares of low- end mobile phones, the sales revenues drop 0.3% year-on-year. CCID Consulting considers that in 2007 the mobile phone industry shows the following new characteristics in terms of product, price, channel and brand competitions:

* Multimedia mobile phone gradually matures * New mobile phone products place emphasis in applied functions * Ultra low prices are popular and the overall center of gravity of price moves downwards * Mobile operators are deeply involved in channel building * China's domestic brands have gradual increases in their market shares

Data communication equipment: telecom-level and enterprise-level markets are the two driving forces for growth

CCID Consulting's data show that in 2007, China's data communication equipment market maintains an overall trend of steady growth, reaching a size of 18 billion Yuan. However, its growth rate has slowed down further. Compared with 2006, the market grows by 5.6%. Of this, the market scale of Ethernet switch market reaches 9.21 billion Yuan, while router sales revenue amount to 8.836 billion Yuan.

CCID Consulting believes that China's data communication equipment market will maintain fast and stable growth. In the telecom-level market, the advent of large-scale IPTV, 3G and metropolitan Ethernet construction will fuel the data communication equipment market. In the enterprise network market, the mainstream of enterprise-level network construction in 2008 and the ensuing years will be the provision of end-to-end and highly integrated data, voice and video network solutions to enterprise users with service applications as the main body and sound intelligent network technology as the foundation. This will be the development direction for network technologies. The government, financial and education sectors will continue to be the three leading sectors in the industry market.

The optical communication market grows steadily

With the fast growth of the Chinese economy in 2007, China's domestic optical communication enterprises seized the opportunities and the market grew steadily. CCID Consulting forecasts that the demand for optical fibers in China in 2007 will reach 27.1 million Core-KM while the production capacity will stand at 52 million Core-KM. The situation of production capacity exceeding demand has not changed. Optical fiber access networks and submarine optical fiber cable are the new highlights in the market.

China's network security equipment market grows 18.8% in 2007

In 2007, network security products in China --- including various types of network security equipment such as VPN, IDS/IPS, firewall and home gateway and the services resulting from these products, excluding software products and supplementary services --- have been strongly driven forward by the two engines of product and policies. The overall market size will reach 6.375 billion Yuan, more than last year, up 18.8% than last year. The three driving forces for the network security equipment market are policies, investment by enterprises and application of new technologies. In 2007, the definition of the network security product market has been enriched. In addition to the traditional network security equipment listed above, it also includes new and smart mobile phone-based anti-virus products and Intranet management-based monitoring equipment. This has injected a driving force for the fast growth of the network security product market in 2008. In addition, CCID Consulting forecasts that in 2008 China's network security product market will maintain its growth momentum and reach a size of over 7.5 billion Yuan.

IPTV users in China grows by 115.8% in 2007

In 2007, the regions where IPTV is put into trial commercial use and the scale of such commercial use have been gradually expanded. User numbers continue to grow at a 3-digit rate. CCID Consulting forecasts that the number of IPTV users in China will reach 1.187 million, up 115.8% year-on-year. However, on the whole, there has been no blowout-type growth in IPTV user numbers. The whole market is still in a period of nurturing and introduction. CCID Consulting thinks that opportunities and challenges exist side by side in China's IPTV market. In-depth cooperation on the industry chain and product and services innovations will become the key for market growth. CCID Consulting forecasts that China's IPTV market will gradually enter a period of fast and stable growth in the next 5 years and the number of IPTV users in China will hit 19.753 million by 2011.

Telecom Operators' Strategic Transformation Drive Forward Growth of China's Industry-Specific Telecom Market

The competition has become increasingly intensified in the telecom industry. The market for personal user market has become saturated, start of slowdown in operators' large-scale growth and continuously falling ARPU values are unfavorable factors that restrict business growth of carriers. Transforming towards "integrated information service providers" has become a consensus view in the telecom industry. The focus and key to such transformation lies precisely in industry customers. The main reasons include:

Firstly, operators' business revenues from industry customers still mainly come from such basic services as Internet access, bandwidth leasing and voice services.

Secondly, driven by the national IT application strategy, many industry groups have realized the importance of information applications, and have already formulated or are now formulating their IT application plans.

Thirdly, the industries where the market concentration is low and SMEs are in the majority are characterized by highly dispersed information and non- smooth information acquisitions. In these industries, the demand for information integration is more urgent and more realistic.