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China’s dot-com economy grew nearly 63 percent year on year in the second quarter, despite increasing inflation and the effects of the Sichuan earthquake, a Shanghai-based research firm reported recently.
Revenue generated by China’s online search, game and travel providers reached 13.32 billion yuan (US$1.94 billion) in the April-to-June period, iResearch said.
Because of the runup in prices and the natural disaster, the quarterly growth rate was only 14.9 percent.
In addition to the revenue earned by Internet services firms, overall trade volume generated by buyers and sellers also rose during the quarter, hitting 29.1 billion yuan, up 22.6 percent from the first quarter.
Online game revenue, which was influenced by the earthquake, gained 9.2 percent quarter on quarter to 5.08 billion yuan, compared with 13.4 percent growth in the first quarter.
China halted all entertainment services nationwide, including online games, for three days in May to mourn the earthquake victims.
“New-media leaders are outpacing the old-media players as the online media break down the barriers (geography, distribution and content) to make them accessible to anyone, anywhere, anytime,” Richard Ji, a Morgan Stanley’s analyst, said in a report.
China’s Internet population recently took the No. 1 spot from the United States for the first time.
On June 30, China had 253 million Internet users, compared with about 220 million in the US, according to the China Internet Network Information Center.
There’s even higher potential ahead. Only 19.1 percent of all Chinese are Internet users, compared with 60 to 70 percent in the US, Japan and South Korea.
And the Beijing Olympics, which opens this weekend, provides even more good news. The Games are expected to fuel a surge in online advertising and cyber games, according to the report by iResearch.
The Internet economy will be powered by online advertising for the Beijing event and the advent of third-generation telecommunications services in the world’s No. 1 mobile phone market, iResearch said.
The coming high-speed mobile network will allow handset users to enjoy new and faster data services, such as video conferences and film downloads.
Among the cyber-market segment, Baidu still leads in the search sector, with Alibaba.com dominating online auction services, followed by foreign players Google and eBay. Competition in online games is heating up as many newcomers have entered the fray. Only about 27 percent of China’s online game revenue was contributed by major Internet portals such as Sohu and Sina, according to iResearch findings.
China’s mobile phone sales will be lower than expected after the May earthquake and a lack of state of the art applications depressed sales in the second quarter, a Beijing-based research firm said recently.
CCID Consulting, a research group with the Chinese Ministry of Information Industry, cut its 2008 domestic handset sales forecast to 165 million units from 185 million units.
“The handset market lacks innovations and the 3G market has only just started so many consumers have adopted a wait-and-see attitude,” said Li Xuefang, a CCID analyst.
Popular new functions include electronic wallets which allow users to pay utility bills, Pushmail which connects directly with e-mail, GPS and NFC (near-field communication) which can be used for ticketing and payments, the CCID said.
“These functions require advanced chips and smartphone operating systems. An extra like mobile TV is just for a niche market,” said Sandy Shen, a Shanghai-based analyst at Gartner Inc.
China has issued details of the anticipated reorganization of the telecommunications industry which will involve 3G licenses, probably next year.
High-speed mobile services, which can include film downloads and videoconferencing, should encourage more users to replace their phones. Firms such as Nokia, Motorola and Dopod have developed 3G phones and are just waiting for regulator approval.
In the first half of the year, 96.40 million handsets were sold, a 17.52-percent growth year on year. But second quarter sales lagged behind the first quarter because of the earthquake, CCID said.
China has told its six telecommunications companies to merge their assets, allowing fixed-line carriers to expand into wireless services and creating three operators that will offer phone and Internet connections to 1.3 billion people.
Under the plan, the parent of China Telecom will buy a mobile phone network from the parent of China Unicom, which in turn will merge with the company that controls the China Netcom Group, the Ministry of Industry and Information said in a statement on Saturday. China will issue three third-generation wireless licenses after the overhaul is completed, it said.
The revamp will help China Telecom and Netcom expand their operations to compete against China Mobile in China, the world’s biggest wireless and Internet market by users.
China had 583.5 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. But the $105 billion US dollars industry has room to expand because 6 out of 10 people in China still do not own mobile phones and 84 percent of the population lacks Web connections.
“Everyone has been waiting for it for over three years and now it is here,” said Kelvin Ho, a Hong Kong-based analyst at Nomura International, referring to the reorganization plan. “Creating three full-service phone companies offering both fixed and mobile services will help the fixed-line phone companies.”
The statement, jointly issued with the Ministry of Finance and the National Development and Reform Commission, did not give a timeframe for the plan or financial details.
China Telecom said in a statement on Sunday that it was in talks to buy Unicom’s code-division multiple access technology business, or C.D.M.A. — the technology that is used in Japan and South Korea. The companies have not agreed on a price. In a separate release, Unicom confirmed those talks and also said it was discussing a merger with Netcom.
Trading in shares of Netcom, China Unicom and China Telecom was suspended on Friday at the companies’ request after a report from the official Xinhua News Agency prompted speculation that China was poised to announce its plans for the industry. Trading will continue to be suspended in Hong Kong pending further announcements, according to the statements.
China Mobile, which has nearly 400 million customers and is the world’s largest phone company by users, fell the most in two months in Hong Kong trading. The drop wiped out $12.8 billion in market value on concern that the company would face increased competition.
China Telecom, the nation’s biggest fixed-line company, will acquire Unicom’s smaller mobile-phone network, which provides services to 43 million customers based on the C.D.M.A. technology, according to the statement. China Telecom will also get the phone assets of China Satellite Communications, the statement said.
Unicom’s C.D.M.A. network, the smaller of the company’s two wireless networks, and its subscribers are worth about 111 billion yuan ($16 billion US dollars), according to estimates by Goldman Sachs in a March report.
The China Network Communications Group, Netcom’s parent, will merge with Unicom’s parent to offer fixed-line and mobile phone services based on the global system for mobile communications technology, or G.S.M., which is the technology used in most of the world, according to the statement.
Unicom had 125.4 million G.S.M. customers as of the end of April, according to the company. Netcom, the nation’s second-largest fixed-line company, had 108.7 million phone users.
China Mobile, which counts more than two-thirds of the nation’s mobile phone users as customers, will take control of the unlisted Tietong, the statement said, confirming the Xinhua report.
China’s telecom market has long suffered from a lack of competition under the de facto monopoly of China Mobile, which has been raking in huge revenues in recent years and taking business away from fixed-line carriers China Telecom and China Netcom as users go mobile.
Chinese regulators aim to boost competitiveness at fixed-line operators before the nation introduces 3G high-speed wireless services, which will require billions of dollars in investments for network equipment. The government has said it plans to offer 3G during the Olympic Games in August.
The parent of China Mobile (0941.HK: Quote, Profile, Research), the country’s top wireless operator, have started commercial trials of a homegrown third-generation wireless standard, TD-SCDMA, in eight cities on April 1, state media said recently. Shares in several Hong Kong-listed equipment vendors, including China Communications Services Corp Ltd (0552.HK: Quote, Profile, Research) and China Wireless Technologies Ltd (2369.HK: Quote, Profile, Research), rose on Friday, as investors anticipate heavy spending on telecoms gear.
The commercial trials will help to improve TD-SCDMA technology, as well as provide better mobile services during the Beijing Olympics, according to Xinhua News agency.
The eight cities chosen for the trials are Beijing, Shanghai, Tianjin, Shenyang, Shenzhen, Guangzhou, Xiamen and Qinhuangdao.
Five of the eight cities are hosting events for the Beijing Olympics in August. China has promised to provide 3G mobile phone services in time for the Games.
The service features high-speed data transmissions that can allow users to watch videos, play 3D games, and conduct video conferences.
China Mobile would provide 20,000 users with handsets worth 2,000 yuan (282 U.S. dollars) to 4,000 yuan each and data cards free of charge for the trial use, it said. A monthly subsidy of 800 yuan would also be offered to each user.
The first batch of 3G handsets were made by six producers, including China’s Lenovo, Hisense, ZTE and New Postcom, and South Korea’s Samsung and LG, it said.
A company spokesman said the trial service would have nothing to do with the issue of 3G licenses. He did not disclose how long the trial service would last or whether it would be extended to other cities.
The next move will be taken depending on the test results of the trial,” he said.
The company says its TD-SCDMA network could accommodate 8 million users.
China had 565 million mobile phone users by the end of last month, about 43 percent of the population.
The International Telecommunication Union recognized TD-SCDMA as one of the world’s three official 3G standards in 2000. The other two are Europe’s WCDMA and North America’s CDMA 2000.
The Chinese government last year approved the use of the European and American standards in China.
Some western governments and companies have accused China of delaying the issue of 3G licenses to allow its indigenous standard to mature enough to compete with foreign rivals.
But Xi Guohua, Vice-Minister of Chinese Information Industry Ministry said last year that the government would give equal status to WCDMA and CDMA 2000 despite its support for the domestic standard.
Analysts also expect the better-established W-CDMA and CDMA2000 standards for 3G to be launched in China alongside TD-SCDMA, although the timing is not yet known.
