Li Gang Vice President, China Unicom Nov. 15, 2006

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Li GangVice President, China UnicomNov. 15, 2006

• Converge Communications and Information Contents
  and Jointly Create a Future of 3G

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Contents
I. Development Trends of Mobile Communications
II. The Development of Chinas Communications
Market
III. China Unicom - Facing the Future
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I. Development Trends of Mobile Communications
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(A)Development Trends of the Mobile
Communications Industry

• 1. Overview of the Global Mobile Industry
• (1) As of the end of 2005, the worlds total
  mobile subscribers exceeded 2.16 billion, an
  increase of over 400 million from 2004.
• (2) 3G mobile subscribers increased steadily,
  with WCDMA subscribers increasing to 44.6 million
  and 1XEV-DO subscribers increasing to 21.9
  million.

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(A)Development Trends of the Mobile
Communications Industry
2. The industry is undergoing a fundamental
change and companies are facing a business
transition
Complex segmented customers
customer groups become segmented
???? ????
Homogeneous customers
Terminal
Customers Characteristics
Integrated information provider, content
provider, applications provider and virtual
operator
Services and service providers
Network operators and service providers are
integrated to make networks into Treasure Trees

Network operators-telecom, radio TV, power and
various optical companies
Operators, content providers and mobile
terminal vendors create values and share profits
Networks and network operators
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(A)Development Trends of the Mobile
Communications Industry

• The industry chain is continuously expanding and
  becoming more

complicated, rendering a

• Traditional 2G industry chain is much simpler,
  with operators playing central roles.
• Currently, we are at the transition stage from 2G
  to 3G, and the industry chain is evolving from 2G
  to 3G.
• The 3G industry chain is fairly more complicated,
  because 3G consists of many related industries
  and supporting industries, such as content
  providers, terminal vendors and software
  developers, etc. These industries have a very
  complex interactive relationship, such as
  coexistent, competing, cooperative and both
  competing and cooperative relations, etc.
• 3G operators are operating in an industrial
  ecosystem. Whether the company can develop
  smoothly not only depends on how it will
  cooperate with the upstream and downstream
  companies of the industry, but also depends on
  synergy between the relevant industries and the
  supporting industries.

coexistent ecosystem.
Equipment vendors network and terminals
2G operators
customers
Mobile terminals
Evolution
Fees
Software developer
SP/CP
Equip. vendor
solution
System integrator
Special application developer
Supporting services
Fee collection
Setting forth requirements
Supporting solution
Services
Solution
Corporate customer
Individual customer
3G operator
Payment
Payment
Supporting terminal
Terminal requirements
Terminal
Note Value creators may be converged to take the
responsibilities of multiple roles.
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(A)Development Trends of the Mobile
Communications Industry
(2)The value chain evolves into a value network,
with new roles, new division of labor and new
profit distribution patterns.

• The network and services of 2G are bonded
  together, with simpler value generation models.
  Network construction, issuing numbers and
  fee collection form the major operational
  activities.
• The 3G value mode from the value chain to the
  value network.
• With the value network, the role of a telecom
  operator depends on its strategic positioning and
  its capability in controlling the value network.
  If the telecom operator is capable to take a key
  position on the value network and play a key
  role, then it can play the leading role.
• Content provision will develop into a huge and
  growth market segment. Operators should learn
  from the experiences and lessons of the Internet
  business models to prevent their central roles
  from being weakened or marginalized.

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(A)Development Trends of the Mobile
Communications Industry
(3) Competition is seen within the whole
ecosystem

• With 3G, competition is no longer competition
  between separate companies, it is more of
  competition between value chains and between the
  ecosystems of companies. The various sectors of
  the ecosystem will strive to create the strongest
  competitiveness and gain maximum benefits through
  coexistence and cooperation.
• Mobile operators capabilities of integration and
  cooperation in the ecosystem will become critical
  for their success.

Content Distributor
Traditional media
Industry information resources
Competitiveness
Cooperation
SP/CP
Coexistence
Co
Mobile Operator
Terminal vendor
Technology provider
Integration Cooperation
Equipment provider
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(A)Development Trends of the Mobile
Communications Industry
(4)Fundamental changes in the business management
model

• 3G is a huge platform that can support multiple
  and diversified services. Network operation and
  services provision can be separated and run by
  different business entities.
• 3G provides integrate services. Service is no
  longer an extension of voice service or a single
  product, instead it is a combination of multiple
  services and products.
• Terminals They are no longer of a mobile phone
  concept, instead they have evolved into
  integrated and intelligent information terminals.
  
• Market and Customers Customized products and
  customer segmentation. Marketing strategies and
  execution become critical.
• Competitive strength not only comes from its own
  strength, but also from its capability in
  integrating outside resources. Integration
  capability is key to gain competitiveness.
• Management The scope of corporate management has
  extended to partner relations management.

• Frankly speaking, the 2G network is a voice
  carrier. Telecom operatornetwork operator
• The network is the treasure tree, with
  value-added services just being variations of the
  voice services. And the so-called service is just
  an extension of voice services.
• Terminals They are mainly tools for making
  calls. Voice services they are homogeneous.
• Market and customers standard products and
  homogeneous customers.There is no need to segment
  the market, with price wars and service wars
  being the major means for competition.
• Competitive strength mainly comes from the
  network, customers and government PR
  capabilities.
• Cooperation simple trade relations
• Management self-management of the company.

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(A)Development Trends of the Mobile
Communications Industry

• Conclusion
• More challenges than opportunities, more
  opportunities than challenges
• Risks cost of broadband, competitors, virtual
  operations, accelerated technological evolvement
  
• Opportunities more products, a broader market,
  more value growth areas
• Challenges The biggest challenge is how to play
  a central role in the ecosystem and how to play a
  key role in the value network environment. The
  industry is going to have thousands of players,
  and he who controls the most critical sectors
  will control the entire value network and get the
  most benefits.

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I. Development Trends of Mobile Communications
(A)Development Trends of the Mobile
Communications Industry
(B)Development Trends of Mobile Communications
Services
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(B)Development Trends of Mobile Communications
Services

• 1.Overall integration of information contents and
  the network

Content provider

• TV broadcasting networkfilm and TV programs
• Internet plenty services including information,
  data and streaming media, etc.
• The telecom network voice, information, data and
  image, various services based on streaming media,
  broadcasting services based on mobile
  broadcasting technology

Telecom operator
Multiplex Operator
INTERNET
3GPP BMS 3GPP2 BCMCS
DVB-H T-DMB S-DMB, etc.
Telecom network
TV broadcasting service
Two-way service
Mobile broadcasting service
Receiving terminals
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(B)Development Trends of Mobile Communications
Services

• 2. Increased derivative services on the
  communications network
• The internet is ahead of other networks in
  service development. The operation modes of
  different network information contents will just
  influence one another.
• Product transplantation trend is growingly
  apparent, but with competitions. For example, MSN
  and mobile IM, e-mails and mobile e-mails, etc.

TV broadcasting network
Social information
SMS/MMS
TV
IVR
Films
Games
Broadcasting
Location service
TV Games
Music
Mobile games
Mobile music
Film TV
Mobile video
Telecom network
Reading materials
Mobile commerce
Mobile Internet
IPTV
Info. browsing
Media info.
IM
E-mails
blogs Podcast
PC games
INTERNET
MSN?QQ
Industry information
Services featuring transplantation
E-commerce
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(B)Development Trends of Mobile Communications
Services
3. Classification of 3G services
Voice Services
Voice Services
VOIP
Value-added Voice Services
Basic Data Services
MVPN
Mobile Browsing
Internet Services
UMS
SMS/EMS
Messaging Services
MMS
SMSCB
IM
3G Services
LBS
Game Download
Online Games
Mobile Games
CRBT
Mobile Music
Value-added Data Services
Online Music
Music Download
Mobile Commerce
Videoconference
Mobile Video
A service may be developed into an industry.
Video on Demand
Video Phone
Corporate applications
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(B)Development Trends of Mobile Communications
Services

• 4. Two development orientations of 3G services
• Entertainment Services
• Mobile entertainment is becoming a major
  orientation in the development of new mobile
  services. Mobile video, mobile music, mobile
  novel, mobile games
• Industry Services
• Weather forecast, public traffic,
  emergency response, education, healthcare

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Contents
I. Development Trends of Mobile Communications
II. The Development of Chinas Communications
Market
III. China Unicom - Facing the Future
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II. The Development of Chinas Communications
Market
(A)Chinas Communications Market Pattern
(B)The Development of Chinas Communications
Industry
(C)The Development of Telecom Value-added
Services in China
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A competition pattern of multi-services and
multi-operators has come into shape
(A)Chinas Communications Market Pattern

• The value-added telecom market
• 18,400 value-added service operators form a fully
  competitive market pattern in the value-added
  services areas such as ISP and information
  services.

• The basic telecom market
• A market pattern with six major telecom operators
  in 2005

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II. The Development of Chinas Communications
Market
(A)Chinas Communications Market Pattern
(B)The Development of Chinas Communications
Industry
(C)The Development of Telecom Value-added
Services in China
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(B)The Development of Chinas Communications
Industry

• 1. High growth rate of business
• Total communications business volume increased
  from RMB 314.52 billion at the end of the 9th
  Five-Year-Plan period to RMB1219.89 billion at
  the end of the 10th Five-Year-Plan period,
  realizing a quadrupling increase.
• In 2005, increased value of telecom services
  accounted for 2.10 of Chinas total GDP, and the
  average growth rate of communications services
  during the 10th Five-Year-Plan period was 7.2.

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(B)The Development of Chinas Communications
Industry

• 2. Steady increase of communications revenue,
  with increased proportion of data services
• Total communications revenue was RMB 637.37
  billion in 2005, up 11.3 year-on-year.
• Annual growth rate of data communications revenue
  was 36.3, with its proportion in total
  communications services being increased from 2.8
  in 2000 to 6.84 in 2005, of which revenue from
  information content services account for 12.9 of
  all data services.
• A comparison of the compositions of
  communications revenues in 2004 and 2005

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(B) The Development of Chinas Communications
Industry

• 3. Rapid increase of telecom service subscribers
  and continuous increase of the penetration rate
• As of the end of August this year, the total
  number of phone subscribers in China broke 800
  million, with 368 million fixed-line subscribers
  and 437 mobile subscribers, topping the whole
  world.
• As of the end of 2005, the number of Internet
  users exceeded 100 million, ranking the 2nd place
  in the world, while the penetration rate of
  fixed-line and mobile phones reached 27 and
  30.3, respectively.

2005
393 mil.
Unit 10,000 subscribers
350 mil.
30.3
27
111 mil.
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(B) The Development of Chinas Communications
Industry

• 4. Breakthroughs in rural communications
• The Village Access Project The project was
  implemented in January 2004. As of the end of
  2005, the ratio of voice service increased to 97
  from 89 before implementation of the project.
  Under the direction of the government, China
  Telecom, China Netcom, China Mobile and China
  Unicom took responsibilities for most jobs of the
  project.
• Rural communications are developing towards
  informatization. China Unicoms New Horizon for
  Agriculture and Tianfu Agriculture Information
  Network are good examples.

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II. The Development of Chinas Communications
Market
(A)Chinas Communications Market Pattern
(B)The Development of Chinas Communications
Industry
(C)The Development of Telecom Value-added
Services in China
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(C)The Development of Telecom Value-added
Services in China
1. Distribution of revenues from value-added
services All value-added services
combined realized an aggregate revenue of RMB 86
billion in 2005, up 43 from 2004.
Note Revenue generated from point-to-point SMS
services of basic telecom operators was not
included.
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(C)The Development of Telecom Value-added
Services in China
2. Revenue composition of value-added services
Total revenue from information services was
RMB 43 billion in 2005, accounting for approx.
50 of the total revenue from value-added
services.
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(C)The Development of Telecom Value-added
Services in China
3. Value-added services are concentrated in the
information service area As of the end of 2005,
China had about 16,130 information service
providers, accounting for 86 of all Chinas
value-added service providers. This figure
includes some 6,100 mobile information service
providers who are mainly engaged in SMS, WAP,
MMS, IVR, CRBT, as well as other mobile
value-added services.

• 80

• 70

• 60

• (RMB 100 mil)

• 50

• 40

• 30

• 20

• 10

• 0

• SMS

• MMS

• CRBT

• WAP

• IVR

Revenue from the major information services of
mobile information services in 2005
Aggregate revenue market shares of top ten
trans-regional operators in terms of revenue in
2005
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(C)The Development of Telecom Value-added
Services in China
4. Capital composition of value-added services
As of the end of 2005, of all value-added
service providers in China, the proportion of
privately owned or joint stock companies exceeded
87.6, up 3 from 2004 the state-owned companies
accounted for 11.9, down 3.3 from 2004
value-added service providers with foreign
investment now only account for a small portion
with only five such companies.
Comparison of the capital compositions of
trans-regional value-added service operators
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Contents
I. Development Trends of Mobile Communications
II. The Development of Chinas Communications
Market
III. China Unicom - Facing the Future
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III. China Unicom - Facing the Future
(A) 3G Opportunities
(B)China Unicom in the Face of 3G
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(A) 3G Opportunities
1. Rapid development of the national economy,
society and culture.
GDP and growth rate in the 10th Five-Year Plan
period

• GDP reached RMB 18.2321 trillion by the end of
  2005, up 9.9 over 2004.
• Total retail sales of consumer goods reached RMB
  6.7177 billion by the end of 2005, up 12.9 over
  2004. Deducting the price-rise factor, actual
  increase was 12.0.
• Total population was 1.30765 billion by the end
  of 2005, up 7.68 million over 2004.
• The 2008 Beijing Olympics will be a High-tech
  Olympics, Peoples Olympics and Green Olympics.

Total retail sales of consumer goods and growth
rate in the 10th Five-Year Plan period
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(A) 3G Opportunities
2. Rapid growth of the companys strength

• China United Telecommunications Corporation was
  incorporated on July 19, 1994. Currently, it is
  the only telecom operator in China which has been
  publicly listed in three cities (NY, HK and
  Shanghai) in China.
• As of the end of 2005, China Unicom had a total
  asset of RMB 226.1 billion, a net asset of RMB
  90.3 billion and over 140,000 employees.
• Revenue from the companys main business was RMB
  77.7 billion in 2005, some 486 times of the
  RMB160 million earned in 1995 at its inception
  year.
• As of the end of 2005, the companys revenue took
  up 13.5 of Chinas total telecom market share.
• As of the end of 2005, the total number of China
  Unicoms subscribers was 130 million.
• The company has established strategic partnership
  with international telecom operators such as SKT.

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(A) 3G Opportunities

• 3. It is very probable that the government will
  issue licenses for 3G services soon
• Wang Xudong, Minister of the Ministry of
  Information said on May 18, 2005, we are
  committed to providing 3G technology in 2008.
• TD-SCDMA industrialization has seen
  breakthroughs.
• TD-SCDMA, WCDMA and CDMA2000 are the three 3G
  technology standards considered by the Chinese
  government.

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III. China Unicom - Facing the Future
(A) 3G Opportunities
(B)China Unicom in the Face of 3G
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(B)China Unicom in the Face of 3G

• 1. Bring the corporate transition forward
• (1)The direction for transitiona modernized,
  integrated communications and information provider

Voice service will still play a dominate
role over a long time in the 3G era, but the
proportion of revenue from information services
will gradually increase .
Modernized, integrated communications and
information provider
Corporate transition
Economy of scale
transition of the Growth model
Communications services Connecting anytime,
anywhere Information services Providing rich
and colorful contents
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(B)China Unicom in the Face of 3G

• (2)Adjustment of the company logo to present a
  new Unicom with a fresh new image
• China Unicom adjusted its company logo
  on March 28, 2006.

• Vigor, innovation and fashion

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(B)China Unicom in the Face of 3G
(3)Precedence will be given to the development
value-added services
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(B)China Unicom in the Face of 3G
(4)Improve existing value-added services
functions focusing on the development of 3G
applications
2.5G/2.75G
3G
improve, optimize and expand
U-Info U-Net
Internet Services
SMS/MMS IM
Value-added services
Messaging Services
U-Map U-Navi
LBS
U-Magic
Mobile Game
CRBT Music Street
Mobile Music
U-Web
Mobile Video
Push Mail ChinaPay
Mobile Commerce
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(B)China Unicom in the Face of 3G

• (5)Committed to openness, innovation, cooperation
  and win-win, we can jointly create an era of
  TIME.
• Contents access is fully open to
  partners to jointly create an era of TIME
  (Telecom Information MediaEntertainment).

Marketing promotion
Film TV
Traditional media
Set customization standards
SP CP
Music
Games
Terminal vendor
Content distributor
Subscriber
Reading materials
Media
Industry info. sources
Provide service
Demand feedback
Industry Info.
Software and technology provider
Equipment vendor
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(B)China Unicom in the Face of 3G

• 2. Fully promote brand marketing strategies
• (1) Guidelines for brand marketing
• Focusing on target customers needs
• Based on available service offerings of the
  company
• Aimed at integrating the various marketing
  resources and capabilities to provide customers
  with integrated communications and information
  services
• Realize the transition from the
  technology-oriented and service-centric
  marketing model to the market-oriented and
  customer-centric marketing model.

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(B)China Unicom in the Face of 3G
(2)Our brand portfolio
China Unicom
Company brand
Customer brands
The Mass Market
The Youth market
Corporate Customers
The Mid- and high-end market
Target markets
Portal brand
Data/fixed-line brand
Service brand
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(B)China Unicom in the Face of 3G

• 3. Strengthen network infrastructure construction
  and be prepared for upgrading to 3G
• Both the existing networks can be upgraded to 3G
  networks with a capacity of 200 million
  subscribers. By the end of 2005, GSM network has
  commenced roaming services with 248 operators
  from 118 countries while the CDMA network has
  commenced roaming service with 18 operators from
  15 countries.
• The CDMA is currently the worlds largest and has
  adopted world leading CDMA 1X technology with a
  capacity to hold 80 million subscribers. The
  network can migrate to 3G smoothly.
• Upgrading GPRS of the GSM network is underway and
  it is planned to commence service in over 60
  major cities in China by the end of the year.
• AS of the end of 2005, China Unicom has a total
  optical lines is 750,000km.
• On Oct. 24, 2006, China Unicom obtained an
  operating license for its CDMA20001XEV-DO
  services in Macao. This was the first time a
  Chinese telecom operator had been issued a 3G
  license.

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THANKS