The Mobile Internet Report Key Themes*

China – Strong Subscriber Growth Offsets 3G Barriers in Short Term –
3G Adoption / VAS Could Provide Significant Upside Long Term
China – Long-Term Positives for 3G
China – Short-Term Barriers to 3G Adoption
Mobile Internet usage surprisingly strong, despite
minimal 3G –
Mobile leader awarded less-advanced 3G
technology
China Mobile (~74% mobile subscriber
market share in CQ4:08) was awarded the
3G license for TD-SCDMA, the homegrown
Chinese 3G technology
Due to this technology disadvantage, we
foresee a potential massive share shift for 3G
subscribers, with China Mobile capturing only
~40% of the market vs. 35% for China
Telecom / 25% for China Unicom
China has high WAP Internet usage (45% of
total users in 2008, up from 34% in 2007)
relative to most emerging markets, signifying
higher demand for mobile Internet / data
Mobile subscriber growth continues to provide
revenue tailwind for carriers despite falling ARPU
Despite declining ARPU in recent quarters (-7%
Y/Y in CQ1:09), China Mobile has continued to
increase revenue (+16% Y/Y in C2008), driven
by strong subscriber growth (+24% in 2008).
3G handsets need substantial subsidies to reach
attractive ASP for Chinese consumers
3G handset prices have been declining
globally as components become less
expensive, but we believe ASPs are still too
high for Chinese consumers; carriers would
need to subsidize handsets down to ~$100 to
become attractive
Value-Added Services (VAS) Could Provide
Incremental Revenue for Carriers –
China Mobile VAS revenue +37% in 2008,
owing to strength in Mobile Music and Mobile
Gaming
Note: WAP stands for Wireless Application Protocol, an open standard used for mobile Internet access. WAP usage
calculated as GPRS (General Packet Radio Service) users as a percent of total mobile subscribers.
Source: Informa WCIS+, Morgan Stanley Research.
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