FRom Ramsey on SI. Looks like UNICOM is bypassing sleepy retailers and selling 95A and1X on its merits.
Our old friend loadeng sent me the link below but he was too lazy to translate. So I stayed up all night to translate
this rather interesting article.
Since this post is a translation, I will post my 2 cents separately to avoid confusion.
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news.enet.com.cn
(all translation, no editing from me)
April 18, 2002
UNICOM'S SECRET STRATEGY DIRECT MARKET IN FULL LAUNCH
1. Unicom finally can stop holding their breath
March 27, Unicom released earnings in HK. Before this, the Unicom high level officials went to HK with concern.
Even though it is China's only carrier who can offer mobile, fix line and IP net, all eyes from the capital markets
are on its CDMA network. The 3 months trial period only generated 650K subs (at that time). Therefore, the
minute they arrived int HK, they called a meeting with all the telecom analysts. Surprisingly, the analysts did not
question the "slow adoption" too much, allowing Unicom to return to Beijing "victoriously".
April 8, CDMA trial period was over. Beijing's telecom reporters received a PR from Uniocm but many of the
reports the next day omitted one set of numbers: the 3 weeks after March 18, new subs increased by 280K at the
rate of over 10,000 per day with the best day being 25,000. According to a source at Unicom, there is a reason for
this.
According to Unicom release on April 9, the sub number has now reached 800K. In order to verify, this reporter
checked earliers sub numbers: Apr 2, CDMA sub was 650K; Apr 7, 784K subs; Apr 8, 800K subs. So the 280K
add duing this period is consistent.
However, what is the significance of this March 18 date? An observant person may notice that this is right around
the time that Unicom (some guy name Wong) announced they will purchase 500k handsets themselves.
At that time, Wong's announcement was exciting news to the handset manufacturers. Within days, Shanghai,
Beijing, Chongqing Unicom branches all announced some free handset promotions. There is another reason to this
sudden acceleration of subs, that being the unannounced direct marketing plan. Apparently, Unicom had this direct
team formed quietly awaiting in ambush.
Apr 15, Unicom's Cheung (Chief of Wireless dept?) confirmed this information at a press conference. His answer
was, "this is the reason why the subs are so much higher than prior to March 18."
2. The hidden team of several thousand direct marketers.
During the Jan 8 Unicom CDMA conference, one industry insider told reporters: Unicom has a lot of sneaky
strategies with their GSM marketing. For some provinces, China Mobile cannot compete with Unicom. Therefore,
of the 5 million net ads for China per month, 2 million came from Unicom. It will be the same for CDMA in the
future.
Then how come in the past three months, CDMA is proceeding with such uncertainty? Unicom has been quietly
organizing their direct marketing team, laying in ambush awaiting the opportunity in different local Unicom offices.
Before Wong announced the 500K handset order, they have already procured a ton of orders.
In the domestic wireless market, direct sales is a new experience.
Cheung explained their direct marketing is a "point to point" method. He admitted that Unicom did not utilize this
strategy with their GSM sales. Traditionally, handsets are through retailers. In the food chain, the low end
resellers have not much gravy left. Direct marketing eliminates the middle man, directly marketing "door to door"
to the end user. What they are after are the institutions and big group users.
This Unicom team had been formed months ago. Cheung said the team is a few thousand strong, part are Unicom
employees, part of local experienced handset salespersons. The organization basically relies on the sales
managers and the salespersons below them. Aside from the Unicom employees, none are salaried. All income are
from commissions. The subscribers' usage directly determines their income. The higher end the subscribers, the
higher the commission and the managers' draw. Using this model, Unicom can go after the high end users.
The strategy reminds us on another fact. When Unicom announced CDMA, they were given a floating 10%
advantage. At the time, Unicom did not offer this benefit, suggesting that it was going to be reserved for big
institution users. In fact, this is already in use by the direct markets. They can offer this to entice churn from the
high end users as well as entire institutions.
According to industry experts, while CDMA direct marketing plan may be a strategy forced upon Unicom, it could
be a promising strategy. In a GSM dominated market, it is not easy for CDMA to try to muscle in. By eliminating
the middleman, it reduced cost and train salesperson (not very clear sentence). With sales representatives directly
facing subscribers at their "door", they can help alleviate the distrust of a new network. The direct sales method
also passes the benefits from the retailers to the salespersons and their managers, killing two birds with one stone.
"The strategy is Unicom's own doing," said Cheung. Before this, McKenszie (some consulting firm that advised
Unicom) did provide Unicom with a CDMA strategic plan but he admitted this plan did not include marketing
strategy because the market was changing so rapidly. Unicom wanted to deal with that problem during execution.
According to sources, facing the next eight difficult months, Unicom plans on using this direct marketing plan. If
they are successful in achieving the 7 million subs target, then Unicom's direct marketing plan will set the
standards for China's mobile industry.
3. Unicom still has to purchase large volumes of handsets.
As the carrier, Unicom is not going to control the marketing, they want to control the manufacturers.
Under China's plan, when Unicom authorized CDMA handset manufacturers, 18 are domestic with MOT being the
only foreign manufacturer. Most of these 18 have no CDMA handset manufacturer capabilities. They were going to
live off this "licensing right". So after a long period, many of them have no handsets ready for market. Therefore,
when Unicom launched Jan 8, there were only 3 models available. When Wong announced the 500K purchase
plan, according unicom insiders, some of these manufacturers were stunned.
As for marketing, Unicom's previous practice was to assign that responsibilty to retailers. There were 25
authorized. They order directly from manufacturers and receive phone numbers from Unicom. Yet, these retailers
were not hurrying with order, fearing that they would be stuck with inventory. Therefore, with the retailers and the
manufacturers both dragging, CDMA subscribers process slowed.
Therefore, last month Unicom utilized an internal subsidiary to purchase the handset and this company becomes the
retailer. This is giving the other retailers a strong message.
Using Unicom's own retailer to order handsets directly, using their own marketing team, Unicom now has a direct
control of the entire process.
With the direct orders, it stimulated the market as well as the interest of both the retailers and the manufacturers.
Recently, a large shipment of Japanese and Korean CDMA handsets arrived. There are now 18 models on the
market supposedly around 600K in volume. MOT is also releasing their beautiful V680 handset, which supposedly
had been sitting in their HongZhou factory since last year. This replaced the "ugly" V8060 handset that they
released earlier.
Cheung told reporters that there will be continuous orders similar to the 500K handset order. He said all the
handsets are per Unicom specifications. With the confidence in the market, they will be directly ordering in
volume. Unicom does not seem to care very much what the retailers think (since they are now directly competing)
because most of the retailers contracts are expiring in June.
Along with handset orders, Unicom's "free handset" program is in full swing last month. Deposit 8000 yuan, use up
the minutes within 2 years and you get a free handset. Unicom did not want to publicize this champaign. Even in
Beijing, htere is only a little fact sheet in the retail store. They do not want to attract opinions from the press.
Cheung said this is a nationwide program. Each region has their plan and may be different. Supposedly in
Chongqing, Unicom is really pushing that market with not only free handsets but also discounted minutes. Unicom's
scheme has attracted China Mobile's attention. They also hinted at subsidized handset plans in HK. Mobile said
Unicom's changing from "free handsets" to "free handset RENTALs" is just a play on words. If Unicom continues
on the course indefinitely, they will launch their own counter strategy.
Unicom claims this is not handset subsidy nor tying subscribers to contracts. It is used broadly in many countries.
Cheung also said this is not going to be long term.
Direct marketing team, free handsets, Unicom direct purchase of handsets, these are the 3 moves by Unicom for
CDMA. Cheung said now subscribers are signing up at a rate of 15,000 - 16,000 per day. His insists that this is
just the minimum with the future much brighter in the next few months.
According to an investment banker in HK, China already has many subs. If they can sign up 5 million subs, it
should be considered excellent. Yet, Cheung continues to express confidence in the 7 million figure.
4. Unicom's appetite for 2.5G much bigger than Mobile's.
Logically, high end users should have a higher demand for data. In order to promote CDMA, Unicom is pushing
2.5G network to the limit but this may not be the whole story.
When Unicom launched CDMA voice this year, they are also testing 1X in 10 cities with a capacity of 100,000.
Though small, Unicom has already successfully demonstrated high speed data and GPS type services. Unicom
internally is very excited. 1X GPS accuracy is 10 meters, GPRS 100 meters. Its speed around 80 kbps, GPRS
around 40 kbps. Unicom supposedly even broadcast a Jackie Chan movie with pretty good results.
China Mobile's response is speed and technology is not important, but rather practical applications. Supposedly
Mobile plans to launch GPRS on World Wireless Day on May 17. Unicom plans to launch 1X in the 10 big cities,
many big cities beginning next year.
Furthermore, upon the completion of the trial period on Apr 8, Unicom made a bigger announcement. They plan on
upgrading their just completed 2G network to 1X in its entirety increasing the capacity from 13 million to 15
million. So we can see Unicom's appetite for 2.5G is larger than Mobile's. However, Cheung claimed they did not
say they intend on offering 1X on such a grand scale.
Many are questioning what Unicom is up to. According to analysis, if correct, Unicom's 1X announcement is a
promo, as a preparation for yet a larger marketing campaign to come.
Since China Mobile's GSM net is basically for voice, if they want to add the internet feature, they need to build out
a new GPRS network at large expense. Unicom's upgrade to 1X is just an upgrade to accomodate both voice and
data. Cheung said Unicom can build the 1X network. So if we need data, fine. If there is no need for data, we can
continue with voice without much consequence.
Unicom confirmed that their upgrade is less than 20% of the original network. Capacity can increase by 50%. In
some areas, if they do not introduce data, 1X can eliminate some basestations thereby saving costs. Supposedly,
this can save Unicom an substantial sum.
There was an analysis which stated if Unicom and Mobile maintained the same fee schedule, the underlying
technology is going to be the factor to watch, even with Unicom not having much high end users now. With the
restriction of 5 Mhz, CDMA's data cost is only fractions of GPRS. If successfully marketed, Unicom's profit will
be multiples of Mobile's. But Cheung said Unicom would be concentrating on watching costs in other areas first.
1X is giving the market a big signal. At 2.5G, Unicom is beginning to catch up to Mobile. With the superior
technology, they can attack with 2.5G and defend with 2G for a marketing battle. |
