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    China Business
     Nov 23, 2010

China gets smart
By Sherman So

The iPhone-led smartphone revolution that has swept much of the world, as people find ever more reason to access the Internet while on the go using high-speed connections, has yet to sweep China, the world's largest mobile phone market. That is about to change, with one major difference - Apple's high-priced iPhones will be largely absent.

The catalyst for the Chinese smartphone market will be Google's Android software, and many phone manufacturers have already embraced Android as the de facto standard, said Benjamin Joffe, a telecom expert based in Beijing. He pointed out that it is free and as an open standard it allows them to have more control over the pre-loading and distribution of applications.

Applications designers such as Hong Kong-listed NetDragon are


already preparing to capitalize on the new market Android will bring. Their success will helped by Taiwan's MediaTek, which supplies China's numerous phone-makers with the chipsets that drive their products - smart or otherwise.

MediaTek, which last year shipped 360 million mobile-phone chipsets to China, with half of these staying in the country, has been sending Android-supported chips to Chinese manufacturers since October. That is helping to put affordable smartphones into the mass market where top-end gadgets such as the iPhone or Research in Motion's BlackBerry are far too expensive for most Chinese mobile-phone users.

An iPhone handset costs about 5,000 yuan (US$753) - the high end of the 3,000-5,000 yuan per month pay of an average office worker - and the software it uses is considered by many application developers to be a closed system, although the US-based company has recently moved to make it more accessible.

At present, there are up to 2 million iPhones in China supplied by the official channel, China Unicom, and another 3 million to 4 million imported from places such as Hong Kong and the United States, researcher BDA estimates. Those numbers are dwarfed by the more than 800 million mobile-phone users in the country and the 300 million or so who already access the Internet for existing low-end services such as games and music downloads.

iPhone will remain a niche market for high-end users in China, said Harry Xiao, chief executive of d.cn, a mobile game community with more than 35 million registered users in China and over 1.5 million visitors a day.

In Shenzhen, the southern heartland of China's metamorphosis into a modern thriving economy, Android phones sell at around 1,000 yuan, and iPad-like tablet PCs go for about twice as much. That makes them much more available than iPhones to the country's heavy users of mobile Internet services in China - notably students, factory workers and soldiers - who cannot readily access home computers, said a venture capital investor who has backed several mobile Internet businesses in China.

Many such people live in dormitories with very limited personal space, and mobile phones are often the only devices they can use to entertain themselves or kill time - hence the popularity of mobile games and music download.

Next year, the market will be flooded with Android phones, said Joshua Maa, CEO of Madhouse, a leading mobile advertising firm in China. Shanghai-based Madhouse runs 200-300 advertising campaigns each year for clients that include Nokia, Samsung, Cisco and BMW.

That may make life difficult for companies like Sky-mobi, which in five years has grown into one of the country's more successful mobile Internet ventures with more than 1,000 applications for low-end phones available on its store-like platform. Led by chief executive Tao Song, it won US$5 million in backing from Sequoia Capital in 2006 and now claims to have over 400 million users, although industry experts say at least 100 million users may be a more realistic figure.

Whatever the number, they drove revenue to 700 million yuan last year, reaping the company a 100 million yuan profit. Sky-mobi on November 19 filed for listing in the US. It plans to raised up to US$150 million. Citi, Piper Jaffray, Oppenheimer & Co and Rodman & Renshaw are underwriting the initial public offering.

Fuzhou-based NetDragon, an online game company, is already winning new business from smartphones. It has developed two highly popular mobile apps, Panada Reader (an e-book reader) and 91 Assistant (PC-to-mobile software that helps to manage a user's phone and gives access to a portal with 20,000 applications that can run on iPhones whose software has been "jail broken". )

Led by brothers Liu Dejian and Liu Luyuan, and their cousin Zheng Hui, NetDragon has moved its attention from the iPhone to Android-driven gadgets and other smartphones. In July, its Panada Reader had more than 400,000 daily users and 91 Assistant 200,000. The Hong Kong-listed company is now raising more funds for its mobile division and plans to spin-off a 200-strong team of workers to boost its application offerings.

Still, outfits like NetDragon and Ski-mobi have a long way to go to catch up with the giant of the pack, Tencent. The Hong Kong-listed company's wide range of services, including its instant messaging (Mobile QQ), blogging (QQ space), news and games has won it about 25% of total mobile Internet traffic, according to a survey in April by top phone operator China Mobile.

Other leaders in the China Mobile survey include UCWeb, a mobile Internet browser, with about 6% of total WAP traffic, and Monternet, the WAP site of China Mobile, which works like a portal and offers news, music and game downloads. It has about 4% of total WAP traffic. Uodoo, UCWeb's video service, has about 4% of total WAP traffic and the 3g.cn portal, again offering news, music and games, has about 2.5%.

The ranking was rather stable in the six months prior to the survey (ie from November 2009 to April 2010), indicating that although Apple's iPhone has revolutionized how mobile phones are used in the West, the Chinese mobile Internet sector is still rather primitive and change has yet to come - Android style.

Sherman So is a Hong Kong-based correspondent and co-author of Red Wired: China's Internet Revolution.

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