Mobile Point View by Paul Ruppert

$430 Million into Chinese Facebook--Xiaonei.com

Oak Pacific Interactive (OPI) owner of Xiaonei.com, one of the leading Web 2.0 social networking services in China, announced March 30th that Japanese Softbank Corp. is leading an investment totaling US$430 million for 35% of Xiaonei.com.  The investment funds will be used to further build the leadership and growth needs of Xiaonei.com, one of the leading social networking sites in China.

Xiaonei.com is a full-featured community and social networking destination that provides an "immersive experience" for its users. Features of the site include multi player gaming and wireless value-added services for mobile users. In the college market, Xiaonei.com has a dominating market share. OPI also owns and operates Mop.com, the largest entertainment portal, and Donews.com, one of the leading IT blogging services in China.

Facbeook Rip Off or ChineseWay
Oak Pacific Interactive acquired Xiaonei.com in October 2006. Xionei, positioned like Facebook visually looks like a clone of Facebook and is thought to have a 90% share of the active on line students in China. It was started by Tsinghua university graduate Wang Xing. Much like Facebook's Ivy League heritage Xiaonei focused on China's top schools first, realizing that widespread adoption would follow. They even received angel funding from investors that included an ex-CTO of Amazon.com.

Xiaonei.com’s features include include multi player gaming and wireless services for mobile users. Xiaonei had “22 million registered users and 12.7 million daily users by March,” reports Communication Information. Xiaonei had 280 million page views in March, according to the report.

Mobile, Baseball, Social Networks
As part of the funding conditions Oak Pacific relayed that Masayoshi Son will join its Board of Directors. Masayoshi Son is the President and CEO of SOFTBANK Corp. Softbank is Japan's leading Internet and telecom services company, and Softbank Mobile is Japan's number three mobile phone carrier, after buying Vodafone KK's operations two years ago. SoftBank's revenue doubled this year to $23 billion, thanks to a boost from the new mobile phone unit. SoftBank also runs Yahoo Japan, the country's top Internet site, as well as the baseball team Fukuoka Hawks.

Joseph Chen, Chairman and CEO of Oak Pacific, said, “We are honored to welcome SOFTBANK as an investor and to have Mr. Son join our Board of Directors. SOFTBANK’s commitment reinforces our mission to develop world-class, scalable businesses that leverage the tremendous growth potential of consumer internet market China. We will use this capital to further our aggressive growth strategy for Xiaonei.com and ensure that it sustains its leadership and innovative spirit for many years to come.”

Existing investors of OPI include General Atlantic, DCM, Technology Crossover Ventures, Accel Partners, and Legend Capital. Note: Accel Partners is also an investor in Facebook--as well as Hook Mobile.

As for Facebook entering China, as I relayed in my earlier post "Facebook's Hong Kong Connection vs QQ" I think the western press is getting it wrong on Facebook's Chinese opportunity. Presently it isn't even in China, it just has a BIG Hong Kong investor. Reflecting the Chinese Way, to date most Chinese internet companies are home grown, from Alibaba, to 51Job, Baidu, Ctrip and Sina. I'm absent exceptions but I don't think there's much to worry about a Lao wai, non-Chinese born social networking company taking a big chunk of the Chinese social networking services market at this stage. Just as Haier is making incremental steps in the US market, Facebook should consider the China market a long tail effort. At minimum It needs to get some experienced China hands on board before the opinion beacons of the western press coronate it King of the SNS providers.

India Eyes Africa: Bharti targets MTN

India's Bharti Airtel is considering making a bid to acquire South Africa-based MTN Group, in a move that would be valued at around US$17 billion and make the Indian operator among the largest in the world according to the Financial Times.

Notwithstanding the usual posturing of such acquisitions---deny, announce, rejoice--Bharti's founder and chairman, Sunil Mittal, denied that the operator's board had met to look at making a formal approach for MTN, adding that no decision had been made. "We talk to people all the time and don't preclude anything," Mittal was quoted as saying. "I do not want to be compromised by ruling anything out for months." Akhil Gupta, joint managing director of Bharti added: "There is nothing on the table as of now."  Clearly, we're in deny phase.

Africa is where it's At!
Africa's mobile markets are ripe for international investors thanks to low penetration levels (24% against 30% across Africa), fast-growing population , and regulatory regimes encouraging competition. Analysts at Informa Telecoms and Media forecast that the market will reach 158 million mobile subscriptions by 2012 - a 78% growth.

In this context, international investors are entering the market aggressively, Middle Eastern groups invested in new licenses (Etisalat, Comium, HiTs Telecom, and Warid Telecom), and other operator groups like Bharti are making the region an integral part of the global expansion strategy. This is the case for Orange, which launched new operations in four countries in 2007/2008 (Central African Republic, and the three Guineas), and for Zain, whose Celtel operations in the regions are scheduled to re-brand to Zain by the end of 2008.

MTN has the largest footprint in the region's markets, including the three leading markets (Nigeria, Ghana and Ivory Coast) and an expanding portfolio of ISPs. It is no wonder then that the group is attracting the attention of outside investors looking for a way into one of the world's most promising telecommunications markets.

No Means Yes?
MTN has relayed in the past that it would be open to evaluate an offer from a global player, though it issued a vanilla statement that it "receives tentative approaches from time to time, which are always evaluated." It added that "the board of MTN has not received any specific proposal, and if and when there is anything specific to report, the market will be notified." I'm sure the bankers have been busy in the background especially given the credit crunch for such large transactions. If its in the public press then its on. These things are usually started via a phone call, not a formal offer.

MTN has a solid reputation in the operator community reflecting its ability to grow and profitably prosper in low ARPU markets in across Africa. MTN is an obvious target for major investors looking to increase their presence in high-growth emerging markets. MTN had a total subscription base of 68.2 million at end-1Q08, according to the operator, up from 58.6 million at end-4Q07, while Bharti is known to be eager to pursue an aggressive M&A strategy to spur growth and apply some of the growing capital and power accruing to global Indian brands. Any initial bid for MTN from Bharti would most likely be a partial tender offer for 51% of the group.

MTN by the Numbers
MTN, which has operations in 21 countries, is 76.9% publicly traded on the Johannesburg Stock Exchange, so Bharti or any other would-be buyer would have to make an offer to institutional and private investors to acquire a majority stake in the company. It has a market capitalization of US$33 billion, so a 51% stake in the company would cost US$16.83 billion at current values.

MTN's US$5.5 billion acquisition of Investcom in 2006 expanded its footprint outside South Africa, but many of the markets in which it operates have relatively low penetration rates, making it a prime candidate for an acquisition approach.

Bharti is benefiting from very strong growth. It had the second-highest number of net additions in 4Q07 in Asia Pacific, with 6.28 million, and India remains the world's fastest-growing country in terms of net adds, with 23.9 million in 4Q07, ahead of even China, which had 23.3 million.

To the Bankers Please
Standard and Chartered is reported to be advising Bharti on its options, and SingTel, which owns 35% of Bharti, is thought to be supportive of a bid for MTN.

China's 3G Soft Launch planned for Beijing Olympics

3G in China hits the Olympic Track

According to Xinhua, China's government news service, third-generation (3G) mobile phone service will be available for use at August's Beijing Olympics as the high-speed wireless connection service and related products were presented as SWAG to Olympic VIPS on Monday.

China Mobile and South Korean mobile phone producer Samsung presented 15,000 3G handsets, plus data cards and nearly 3 million yuan (US$ 428,600 ) of calling fees to the VICs (Very Important Chinese) of the Beijing Organizing Committee for the 29th Olympic Games in Beijing on Monday.

With the limited base of staff and volunteers for the Games who can utilize high-speed data transmissions, allowing them to view mobile televised games, play videos, and surf the Internet on cell phones, it signals the Chinese government's intent and interest to issue licenses and finally enter the foray of 3G mobility. CMCC's technology is the Chinese 3G standard, known as TD-SCDMA (Time Division Synchronous Code Division Multiple Access), and has been conducting limited trials of 3G service in China.

China Mobile has building out their TD-SCDMA network in eight cities, five of which are to host events for the Beijing Olympics in August, including Beijing, Shanghai and Tianjin, advised company insiders.  China Mobile is the sole Olympics partner/sponsor for the Beijing Olympics for mobile communications services while Samsung is the only sponsor for mobile terminal supply.

The beginning of the beginning of the 3G wars

With the ITU (International Telecommunication Union) having recognized TD-SCDMA as one of the world's three official 3G standards in 2000 it is inevitable that the next mobile technology wars will be started soon. The other two are Europe's WCDMA and North America's CDMA 2000. With close to 600 million mobile users in the Chinese domestic market, close to twice the US population, as well as the twice the population of the EU, where do you think this market battle will be settled--out of the US, Europe or China?

Facebook's Hong Kong Connection vs QQ

Li Ka-Shing overlooks QQ?

Last month it was reported that Li Ka-Shing, one time plastic flower manufacturer, 11th richest man on  the planet and Hong Kong billionaire upped his stake in Facebook to more than $100 million according to  published reports. Li previously invested a reported US$60 million in Facebook in November 2007.   

That means that he now owns nearly 1 percent of Facebook, assuming the deal was made at the same $15 billion valuation that had been placed on the company since Microsoft's US$240 million of October 2007. If the valuation has dropped, he owns even more!

Li, who is chairman of port conglomerate, real estate speculator and telecom company Hutchinson Whampoa, told reporters on his company's conference call:

"Facebook is doing very well and we could have some synergy between the 3G services of Hutchison and Facebook, so the customers could use Facebook on mobile phones."

Certainly, mobile is the biggest opportunity for social networking in China, with close to 600 million mobile users in the middle kingdom, versus less than 30% of that for China's web uses--172 million users. Facebook may be considering this as a move to enter the China market by thinking it can get "on deck" with the Chinese carriers, resulting in tens of millions of users very quickly. If Facebook thinks this is access to China's mobile silk road, ask yourself how much of CMCC does Li Ka Shing own? Answer: 0%. Such simplistic theories are easily dismissed.

An Investor First

The "Chinese Way" prefers to do business with a local Chinese provider. Better joss with a local who can then go global, than a loa wai company entering China. The cultural reveloution was not that long ago, and just as economic nationalism is expressed with US consumers (Buy American!), the same happens in China. Facebook will not so easily enter the Chinese market on the coat tails of Li, especially since mobile operator Hutch 3 (Li's primary property) in Hong Kong has no formal commercial presence in the mainland. Better to deal directly with the Chinese, something Facebook's new COO, Sheryl Sandberg is likely to be the only one in the building who has ever sat across from a Chinese functionary, from her prior experience at the US Treasury Dept.

Plus there are rumors that Facebook is seeking a revenue return for Facebook subscribers who utilize mobile operator text and mobile messaging through their Facebook account. Whoa--they think they will get operators to pay them for messaging traffic. A very bold commercial position which would be an attempt to realign the mobile messaging business. This is an opportunity that I've surmised in the past and that I think is possible where social networking services could capture messaging traffic if they approach it correctly--not by confrontation with the mobile operators but through co-opting. Perhaps they think China's social silk road runs through Li Kai Shing. Perhaps they think they can leverage CMCC much as Apple has in taming the Dragon? Clearly University Ave is a long way from Tsim Sha Tsui and I don't think the Cuppertino business case is the one to follow in China.

What will QQ will do?

Who is QQ you ask? For the uninitiated or overly  western centric in the audience, QQ is the world's largest social networking service with over 300 million users in China, with revenues exceeding US$523 million. That's almost 4x Facebook's estimated US$150 million in revenues. With an operating profit of US$224 million, and 21% of its total revenues of US$334 million generated from NON ADVERTISING MOBILE revenues of $110 million perhaps Li Kai Shing should have invested in TenCent the owner of QQ.

QQ is still growing. Notably, the ad market is largely untapped - mostly due to the misunderstanding of IM and SNS by ad agencies and brands in China. Lots of work to convince those folks that a service that attracts so many millions is, perhaps, a media in its own right. Probably why Li Ka Shing invested in Facebook in the first place. He gets it that it is an emerging media platform, not a simple application.

 

China Mobile: It Pays to be a Winner

US$3.4 billion revenues in one quarter

China Mobile (CMCC) the world's largest mobile phone carrier, announced today that its first-quarter profits are up 37%. China has the largest population of mobile users, with around 520 million subscribers. The Chinese government predicts that this number will increase to 600 million by the end of 2008.
China Mobile posted a profit of 24.1 billion yuan (US $3.4 billion) in the first-quarter that ended on March 31. Subscriptions rose 6% for a total of 392 million users. New accounts accelerated by 33% to 7.6 million per month in the quarter, driven mostly by new business in rural China. China's eastern cities are near the saturation point, so the company is targeting the countryside. With everything in China on hold post the Olympics, the closely awaited issuing of third-generation (3G) licenses will probably be announced sometime in October.  Just imagine two years from now how much influence will have in the mobile business. CMCC as a buyer with close to a billion users of handsets, infrastructure, applications and content needs. Wow.

China Mobile's iPhone BATNA

What is CMCC's BATNA point ?

Reports from Beijing indicate that China Mobile is taking a silence is golden approach with Apple over the introduction of the iPhone in China. Of course the phone itself is already there being hacked and  sold in the after market to interested inhabitants of the middle Kingdom willing to shell out about 3400 RMB

"We are keeping in touch with Apple over the iPhone, but details such as business models and commercialization should be settled before we enter into formal negotiations," said Chairman Wang Jianzhou at the 2008 Conference of Boao Forum for Asia on Saturday in South China's Hainan Province. 

Reports in January indicate a breech between CMCC and Apple on the amount of revenue share Apple expects and the cost of the iPhone relative to the Chinese market. Some Chinese mobile observers are claiming that Apple is expecting a 20%-30% share of air time revenue from China Mobile. A potentially staggering sum for such a small slice of the Chinese market. I don't think it is worth it from the Chinese side, and their negotiating gambit is a good one.

Given the extreme costs of roughly $500 for a mobile phone expectations are naturally low from the Chinese side on the number of potential units to be sold relative to the over all market, and the trade off in revenue from a high end user is very high for the "opportunity" to carry the iPhone. No wonder the Chinese rightfully stepped back from the negotiations. Their BATNA, or Best Alternative to a Negotiated Agreement, is to do nothing. They loose nothing in doing nothing.

The after market is small enough that those who really want the phone are being supplied sufficiently with hacked iPhones. Scarcity keeps the black market price high enough that only highly motivated buyers seek one out, for mostly the status of it. For example, in the most mobile messaging dense nation on earth, the iPhone is hardly messaging friendly. So China Mobile looks at this and probably thinks "Much ado about nothing." Meanwhile the mostly internet driven media, especially web based writers, pant and sweat as though it is the second coming.

Like so much else in China right now, the Chinese are waiting the west out, and don't expect anything concrete to happen until after the Beijing Olympics.   

Ring Ring...it's Mt. Qomolangma!

Everest: Ready for the Torch

30 Reporters have reached the  Mt. Qomolangma (Chinese name for Mt. Everest)  media center ready to cover the Olympic flame ascent. Described as the "first media team" in the Chinese press, they are poised to cover the Olympic torch relay as it ascends the tallest mountain in the world.  The media center, built at an altitude of 5,040 meters (16,632 ft), was opened on April 2, Yang Zhanqi, an official with the Everest Olympic Torch media center advised on Monday.  Recall in an earlier post here, "Mt Everest Calling", I covered China Mobile's successful installation of 17 base stations and 22 repeaters on Mt. Everest, the highest being at 22,000 ft.

The first team consists of 19 Chinese and 11 lao wai (foreign) journalists. "It's a little bit tough all through the way here, but it is a high altitude, so I still need to take time to get used to it," said Ariane Reimers, a female reporter from the Beijing Bureau of the German ARD Television.     "It is about five thousand meters high, so I still have headache and sometimes could not sleep well in the past few days. We came a long way to reach this high so I really want to write some stories about the torch relay and the torch bearers. It is a great feat to build such a great media center this high and set up camps on the way to the summit. The mountaineers are wonderful," she added.

China Mobile is on Top of the World

The exact time for making the historic ascent has not been identified, perhaps for security reasons as much as the volatile weather conditions on Mt. Everest, but it is thought that sometime this month the torch relay will ascend Qomolangma. No doubt someone already is making calls from up there, with some great roaming revenue for CMCC.

Given all the coverage of the paid for ascents of Everest, one can only imagine whether the trail of demonstrations will lead to Qomolangma as well. I think not since this is Chinese territory. Look for media coverage of the event soon....

Chinese Wife Sends Message after being Dropped

Mobile Matrimonial Wars continue

According to Chinese news service Xinhua, a Chinese woman in Weifang city in the eastern province of Shandong, set fire to 400 spanking new mobile phones in response to her husband leaving her.

37 year old "Mrs. Wang" seemed inclined to send a message to her hubby over the lack of bliss in their marriage. The Wang couple ran a successful phone retail business in Weifang. Weifang known as the Kite Capital of the World," is "flying high" due to its growth.

The surge in the Wang phone business  had put the marriage on the rocks, and the couple frequently fought according to the Qilu Evening News.  On March 3rd, after a "bitter row", the husband "slammed the door and left their home."

Wrought with despair, and crazed--or focused--with anger Mrs. Wang collected their entire stock of mobile phones, tossed them on the bed, set them afire and left. Acrid black smoke brought the fire brigade who quickly subdued the flames, but not before the handsets, valued at 300,000 Yuan (US$ 42,100) were consumed. 

Mrs. Wang has been apprehended and charged with arson.

China Cutting into Microsoft's Bid for Yahoo?

According to Zaobao.com, Beijing is looking to intervene into Microsoft's acquisition of Yahoo by asking Chinese online e-commerce service provider Alibaba to provide detailed information on the acquisition and by keeping a close watch on the process of the acquisition as well as its possible influence on Alibaba and its impact on the Chinese internet market.

Red Hottest rumor coming out of China is that the Chinese government is intruding into Microsoft's  bid for Yahoo by requesting Alibaba, China's e-commerce giant, to proffer information on the potential acquisition's impact on Alibaba and to exert some influence on the possible acquisition. Yahoo is a significant shareholder of Alibaba, and the rumor is that the Chinese government has contacted Alibaba in the hope of knowing about the influence of Microsoft's acquisition of Yahoo on Alibaba.

Chinese government types are not keen on a having a foreign company potentially controlling or influencing the Great Firewall of China, hand on the till of filtering content, so they are concerned about maintaining local management control of Alibaba.  But, the government may have to stay on the bench until the playing pitch is changed as a result of China's Anti-monopolization Law not taking effect until August 1, 2008. Until then the Chinese government is powerless if Microsoft is able to execute the purchase before then.

Another blame China brewing in the winds?

You, there. What do you think...is the Chinese government really that keen about the acquisition of Yahoo by Microsoft? Are they that paranoid, do they really have a chance, or is this just the usual "stir the drink about China" to get some coverage? Comments are readily appreciated!

I Scooped the New York Times on iPhone Gap

Today, The New York Times "discovers" that 1.4 million missing iPhones are not registered in the ATT network and that most have found their way back to China in "After China Ships Out iPhones, Smugglers Make It a Return Trip."  Sound familiar?

Regular readers may recall my posting "iPhone Revenue Gap" of January 30th, 2008 ( three weeks ago ) where I broke down the resulting revenue gap of the "lost iPhones" for Apple, ATT, as well as projections against the UK market with O2.

Apple in the middle kingdom has been an interest of mine here going back to the launch of the iPhone when I posted about iPhone imitators in "Asian Rivals to iPhone" on July 30th, 2007; covering negotiations with China Mobile in "China Mobile Selling iPhones" on 11/27/07 regarding the sale of the iPhone, as well the apparent failure of negotiations between Apple and China Mobile at Mobile Messaging 2.0 where I am a featured columnist in my January 20, 2008 post  "Apple Rides the Dragon: Not!".

So, faithful readers, remember you read it here first!