KongZhong Corporation(KONG) Chaina Analyst on Telecom

KongZhong Corporation, through its subsidiaries, provides wireless interactive entertainment, media and community services to mobile phone users in the People’s Republic of China. The company also engages in the development, marketing, and distribution of consumer wireless value-added services.
The company’s wholly-owned subsidiaries include KongZhong Beijing, KongZhong China and Beijing Anjian Xingye.
The company provides interactive entertainment, media and community services to mobile phone users through 2G technology platforms, including SMS, IVR and CRBT, and through 2.5G technology platforms, including WAP, MMS and Java, which offer higher quality graphics, richer content and interactivity than 2G wireless services.
The company operates its wireless value-added services through Beijing AirInbox Information Technologies Co., Ltd (Beijing AirInbox), Beijing Boya Wuji Technologies Co., Ltd., (Beijing Boya Wuji), Beijing Wireless Interactive Network Technologies Co., Ltd (Beijing WINT), Wuhan Chengxitong Information Technology Company Limited (Wuhan Chengxitong) and Beijing Xinrui Network Technology Company Limited (BJXR).
The company provides wireless value-added services on each of the wireless access protocol (WAP), multimedia messaging services (MMS) and Java technology platforms. In addition, the Company provides wireless value-added services on the networks of China Unicom, China Telecom and China Netcom, China’s other telecommunications operators.
The Company offers a range of services that users can access directly from their mobile phones, including by choosing an icon embedded in select models of handsets, or from a mobile operator’s portal or Website.
Wireless Value-Added Services
The company’s services are organized in three categories, consisting of:
Interactive Entertainment: The company offers a range of interactive entertainment services, including mobile games, karaoke, electronic books and mobile phone personalization features, such as ringtones, wallpaper, icons, clocks and calendars. The company provides its interactive entertainment services through its technology platforms. Mobile phone users download on demand or subscribe for regular downloads of its interactive entertainment services, although most of its mobile games are offered on a single-transaction basis.
Mobile Games: The company focuses on offering mobile games based on 2.5G platforms including WAP and Java. In 2005, the company developed mobile games product development team to develop and publish 2.5G mobile games and also acquired Tianjin Mammoth, a mobile games developer. As of December 31, 2006, the company had a library of approximately 100 internally developed mobile game titles. The company's internally developed mobile on-line game e 3-Kingdom was named Most Popular Mobile Networking Game at the 2006 China Joy Best Games Contest.
Pictures and Logos: Mobile phone users can download pictures and logos to personalize the background of their mobile phone screens. Such pictures include cartoons, pets and scenic photos.
Polyphonic Ringtones: The company's ringtones enable a mobile phone user to personalize their ringtones using the melodies of their favorite songs or special sound effects.
Media: Users can download its media content on either a single-transaction basis or a monthly subscription basis. Media content covers international and domestic news, entertainment, sports, fashion, lifestyle and other special interest areas.
News: The company offers international and domestic news, delivered in a format easy for the reader to peruse. The company's WAP version enables users to search for news that interests them.
Entertainment: The company's entertainment magazine focuses on high-profile celebrities and includes star biographies, interviews and photos.
Sports: The company's sports magazine features sports news, game scores and information about sports stars.
Community: Users can engage in community-oriented activities such as interactive chatting, message boards, dating and networking. Users might access the company's community services on a monthly subscription basis or single-transaction basis.
Chat: The company offers various chat services. For instance, the company has a virtual reality game that allows mobile phone users to choose the lifestyle they dream of and interact with the city’s other inhabitants/players.
Dating: The company offers dating mobile services. The company has a mobile chat and dating service available on WAP and MMS that allows users to utilize the improved features of 2.5G technology to choose their chatting partners from a selection of pictures taken with users’ mobile phone cameras. The company also offers a WAP-based dating service designed to simulate a campus environment tailored for students.
Photo Albums: The company's photo albums allow mobile users to post and arrange their photos taken with their mobile handsets into albums accessible via their handsets. Utilizing the WAP technology platform, mobile users can access photo albums in a similar to accessing photo albums on the Internet.
Wireless Internet Business
The company has developed a wireless Internet site that customers can visit from their mobile phones through their WAP browser while using 2.5G mobile networks. The company's wireless Internet site is independent of the telecommunications operators’ portals, including China Mobile’s Monternet portal. Through Kong.net, the company offers news, community services, games and other interactive media and entertainment services to its customers free of charge. The company also sells advertising space on Kong.net in the form of text-link, banner and button advertisements.
The company has signed cooperation agreements with approximately 50 content providers including Beijing Mapabc, a digital map provider, SouFun.com, a real estate portal, and Hexun.com, an on-line financial news provider, to include selected content from these providers on Kong.net.
Technology Platforms
2.5G Wireless Standard Services
The company delivers its 2.5G services primarily to users of mobile phones that either are based on the global system for mobile communication, or GSM, standard and utilize general packet radio service, or GPRS, technology or are based on the code-division multiple access, or CDMA, standard and utilize CDMA 1x technology, in both cases through the WAP, MMS and Java technology platforms.
Wireless Application Protocol (WAP): WAP allows users to browse content on their mobile phones so that users can request and receive information in a manner similar to accessing information on Internet web sites using personal computers. The company provides its WAP services primarily over China Mobile’s GPRS networks. The company's WAP services allow users to download color and animated pictures, logos and wallpaper, interactive mobile games, customized ringtones and other Internet content. In 2006, China Mobile selected the company to provide services on two of China Mobile’s nine premium WAP channels, the game channel and the music channel, for an initial period of six months.
Multimedia Messaging Services (MMS): MMS is a messaging service that the company delivers approximately GPRS networks and that, in China, allows up to 50 kilobytes of data to be transmitted in a single message, compared to 140 bytes of data via SMS. The company's monthly subscription services automatically send information to users’ mobile phones, and include news, beauty, celebrity photographs and special collectible items. The company's services that can be downloaded on a single-transaction basis include pictures, screensavers, ringtones and special sound effects.
Java: Java technology allows mobile phone users to play interactive and networked mobile games, perform karaoke and download applications, such as screensavers and clocks, to customize their mobile phone settings.
2G Wireless Standard
The company delivers its 2G services primarily through the SMS, IVR and CRBT technology platforms.
Short Messaging Services (SMS): SMS is the basic form of mobile messaging service, and is supported by substantially all mobile phone models sold. Users can receive the company's products and services, which include news, jokes, weather forecasts and short stories, through their mobile phones on a subscription or single-transaction basis.
Interactive Voice Response (IVR): Interactive voice response services allow users to access voice content from their mobile phones, including music, chat, foreign-language instruction and novels.
Color Ring Back Tone (CRBT): Color ring back tones allow a mobile phone user to customize the sound that callers hear when ringing the user’s mobile phone. The company offers various entertaining content, including pre-recorded messages, movie dialogues and soundtracks and a range of classical and popular music.
Strategic Relationships
The company has established cooperation arrangements with telecommunications operators, mobile handset manufacturers, content providers and other business partners to produce, promote and market its services. The company provides its wireless value-added services mainly pursuant to cooperation agreements through China Mobile’s Monternet network. The company also has provided its wireless value-added services through China Unicom’s Uni-Info mobile network and each of China Netcom’s and China Telecom’s Personal Handyphone Systems, or PHS systems, which are based on fixed-line networks. In addition, the company cooperates with various China’s mobile handset manufacturers, which make select handset models with a wireless value-added services icon in the handset’s menu that enables users to access its services directly. The company pays service fees to the telecommunications operators, mobile handset manufacturers, mobile handset distributors, content providers and other partners, where relevant.
Mobile Handset Manufacturers
The company has established distribution arrangements with mobile handset manufacturers, including Motorola, Samsung, Amoi, Lenovo, Sony Ericsson and other major domestic and international handset manufacturers. The company pre-load into the menu of certain mobile handsets its WAP icons and MMS, SMS, JAVA and IVR short codes, which enable customers to access its wireless value-added services. The company has distribution arrangements with 41 mobile handset manufacturers.
Content Providers
The company licenses news content from the Xinhua News Agency, China News Service, www.qianlong.com and China Foto Press, and licenses music content from EMI Group Hong Kong Ltd., Sony BMG Music Entertainment (Asia) Inc. and Avex Asia Limited. It has entered into license agreements with Namco Limited, Gameloft, The Walt Disney Company and Superscape Ltd. to provide their games to mobile phone users in China.
Competition
2.5G Wireless Standard Services
The company's competitors in the 2.5G wireless value-added services market in China include Internet portals, such as Sina Corporation, Sohu.com Inc., NetEase.com Inc. and TOM Online Inc., as well as providers focused on wireless value-added services, such as Hurray! Solutions Limited and Linktone Limited.
2G Wireless Standard Services
The company's competitors in this market include Internet portals, such as Sina Corporation, Sohu.com Inc., Netease.com Inc. and TOM Online Inc., and providers focused on wireless value-added services, such as Tencent Technology Limited and Linktone Limited.
History
The company was founded as Communication Over The Air, Inc. in 2002 and changed its name to KongZhong Corporation in 2004.

History of Mobile Phone/2.5G Network

In the history of communications technology, Martin Cooper pioneered the cellular telephony technology and that is why he was considered as “the father of mobile telephony”. Mr. Cooper introduced the 1^st mobile in 1973 in USA while working for the famous Motorola company, but it was not until 1979 when the first commercial cellular system was introduced in Tokyo, Japan by NTT. It was in 1981 when the Nordic countries introduced a mobile system similar to Advanced Mobile Phone System (AMPS). Side by side in 1983, United States adopted the rules for creating the first commercial cellular system that was put into operation for the first time in the city of Chicago. This step by US served as a starting point for the spread of mobile technology in several countries around the world. This system was then used as an alternative to conventional wireless telephony. The latest mobile technology was widely accepted by all the countries and within a few years, there were millions of people who began using this system. After this, there began the need to develop and implement other forms of multiple access channels and transform the analog signal to digital in order to make space for more and more users that were increasing at a rapid rate. Now in order to separate one from other stage, mobile telephony has been characterized by having different generations namely 1G, 2G, 2.5G, 3G and now 4G and 5G. I have already described 1G, 2G, and 3G in my previous hub, Cell Phone Generations - Advantage of 3G network over 1G and 2G but in between the generation of 2G and 3G, there was a generation which I forgot to mention and that was 2.5G which is very important for the understanding of mobile phone generations so here it is:

Second And A Half Generation of Mobile Phones (2.5G Network)
In the past, many telecommunication service providers moved to 2.5G networks before entering into 3G networks. It is already understood that 2.5G technology was much more advanced and faster than 1G and 2G and at the same time, it was much cheaper to upgrade to 3G from 2.5G. The 2.5 generation of mobile phones offered extended features and additional capacity that was more than 2G networks.  These new features were High Speed Circuit Switched or HSCSD, General Packet Radio System or GPRS, EDGE or Enhanced Data Rates for Global Evolution, IS- and IS-136B 95Bm. The European and U.S network carriers moved to 2.5G in 2001 while Japan got straight from 2G to 3G in 2001. Every transformation from 1G to 2G, 2G to 2.5G, and 2.5G to 3G networks helped in communicating better and better.

What's inside a mobile phone?
A mobile phone is an electronic device with intricate designs and processes millions of calculations per second to compress and decompress the voice stream. If you will disassemble a mobile phone, you will be able to find the following parts:

• One integrated circuit containing the brain of your cell phone.
• One antenna
• One LCD or liquid crystal display
• One small keyboard
• One microphone
• One speaker
• One battery

So the above were some details on brief history of mobile phones, introduction of 2.5G Network or second and a half generation of mobile phones plus a small part on what's inside a cell phone or mobile phone.

The evolutioanary road for the indian Telecom network

The wireless tele-density in India has now reached 48% and is showing no signs of slowing down. The number of wireless users will only go up as the penetration moves farther into the rural hinterland. In these times Communication Service Providers (CSPs) are faced with a multitude of different competing technologies, frameworks and paradigms. On the telecom network side there is the 2G, 2.5G, 3G & 4G. To add to the confusion there is a lot of buzz around Cloud technology, Virtualization, SaaS, femtocells etc., to name a few. With the juggernaut of technological development proceeding at a relentless pace Senior Management in Telcos, Service Providers the world over are faced with a bewildering choice of technology to choose from while trying to maintain the spending at sustainable levels. For a developing economy like India the path forward for Telcos and CSP is to gradually evolve from the current 2.5G service to the faster 3G services without trying to rush to 4G. The focus of CSPs and Operators should be in customer retention and maintaining customer loyalty. The drive should be in increasing the customer base by enhancing the customer experience rather than jumping onto the 4G bandwagon. 4G technology for example LTE and WiMAX make perfect sense in countries like US or Japan where smart phones are within the reach of a larger set of the populace. In India smartphones, when they come, will be the sole preserve of high flying executives and the urban elite. The larger population in India would tend to use more of the VAS services like mobile payment, e-ticketing rather than downloading video through their mobile phones. In US, it is rumored that iPhones with their data hungry applications almost brought a major network to its knees. This is primarily due to popularity and affordability of these smart phones in countries like the US. Hence it makes perfect sense for Network Providers in the US to upgrade their network infrastructure to handle the increasing demand for data hungry applications. Hence the move to LTE or WiMAX would be a logical move in countries like US. In our nation the thrust of Service Providers should be to promote customer loyalty by offering differentiated Value Added Service (VAS) service. Also the CSPs should try to increase the network coverage so that the frustration of lost or dropped calls is minimal. The Service Providers should try to attract new users by offering an enhanced customer experience through special Value Added Services (VAS). This becomes all the more important with the impending move to Mobile Number Portability (MNP). Once MNP is in the network many subscribers will switch to Service Providers who offer better services and have more reliable network coverage.
Another area where the Service Providers should focus on is in creating App Stores like iPhone which has spawned an entire industry in the US. Mobile App s from app stores besides providing entertainment and differentiation can also be a very good money spinner. While the economy continues to flounder the world over the Service Providers should try to reduce their Capacity Expenditure (Capex) and their Operating Expenditure (Opex) through the adoption of Software-as – Service (SaaS) for their OSS/BSS systems. Cloud technology besides reducing the Total Cost of Ownership (TCO) for Network Providers can be quite economical in the long run. It is quite possible that prior to migrating to the Cloud all aspects of security should be thoroughly investigated by the Network Providers and critical decisions as to which areas of their OSS/BSS they would like to migrate to the Cloud. While a move to leapfrog to 4G from 2G may not be required, it is imperative that with the entry of smartphones like iPhone 3GS, Nexus One and Droid into India the CSPs should be in a position to handle increasing bandwidth requirements. Some techniques to handle the issue of data hungry smartphones are to offload data traffic to Wi-Fi networks or femtocells. Besides, professionals these days use dongles with their laptops to check email, browse and download documents. All these put a strain on the network and offloading data traffic to femtocells & Wi-Fi have been the chosen as the solution by leading Network Providers in the US.
Conclusion
So the road to gradual evolution of the network for the Network Operators, Service Providers are
1. Evolve to 3G Services from 2G/2.5G.
2. Create app stores to promote customer retention & loyalty and offer differentiated VAS services
3. Improve network coverage uniformly and enhance the customer experience through specialized App stores
4. Migrate some of the OSS/BSS functionality to the cloud or use SaaS after investigating the applications of the enterprise that can move to the cloud
5. Offload data traffic to Wi-Fi networks or femtocells.