Consumer Electronics

China's WLAN market developed rapidly in 1H08 under favorable governmental policies of telecom restructuring and "wireless city" initiatives. 1H08 WLAN revenues reached 1.38 billion Yuan, up 31.4% YOY. By the end of June 2008, China's wireless hotspots numbered 10,000 covering 110 cities. Over 30 cities have incorporated "wireless city" in their strategic infrastructure planning. CCID Consulting projects WLAN revenues to reach 2.8 billion Yuan by the end of 2008.

source: ccid consulting, July 2008

WLAN activity surged after 1H08 telecom restructuring announcement.

Prior to telecom restructuring, many telecom operators were already preparing for WLAN. However, China Telecom, relative to other operators, was more optimistic and aggressive towards WLAN development. China Mobile also increased its WLAN deployments, and in particular around the Beijing Olympic venues.

China Telecom has already invested heavily in its WLAN preliminary layout, prototyping, scaling and business development. The company had already gone through equipment bidding, testing, and vendor selection. Upon the telecom restructuring announcement, China Telecom aggressively set up WLAN sites, executing carefully considered investments and deployment.

Wireless City construction drove rapid WLAN development.

China's national urban informatization policies drove wireless city development, which were further supported by telecom operators and WLAN equipment vendors. As a result, wireless cities developed rapidly, which in turn drove growth in WLAN spending. While China's three major telecom operators invested heavily in WLAN, so had non-mainstream providers such Chinacomm, which had invested heavily in Beijing. Equipment providers such as H3C, Cisco, and Nortel moved quickly to exert their influences to operators and businesses.

Vendor competition heats up; H3C is in the lead.

Three of H3C's product types made it onto China Telecom's master procurement list, thereby making H3C the largest WLAN product and solutions provider for China Telecom, and a leader in the market. Vendors such as D-Link, TP-LINK and NETGEAR made less of an impact with operators, but focused more directly in China's consumer markets.

1H08 China WLAN Equipment Vendor Shipment Share

source: ccid consulting, July 2008

2H08 DEVELOPMENTS TO WATCH FOR

Telecom operator WLAN initiatives will encourage users and drive WLAN terminal market.

However, as with all China's restructured operators, the focus will be on providing comprehensive telecom services and profitability. China Telecom is actively studying overseas best practices to explore effective profit models, while China Netcom is actively planning to deploy WLAN services and products in 2009.

Expect less restrictive policies towards Wi-Fi mobile phones.

CCID Consulting sees the following market momentum factors which point to less restrictive WI-FI mobile phone policies:

1. The large-scale WLAN infrastructure constructions in the Tier-1 cities of Beijing, Shanghai, and Guangzhou provide a good foundation for wireless networks.
2. The Chinese people's lifestyle pace has only gotten faster, and their use of the mobile phone is becoming more and more integral in managing their lives. Mobile phones with online transaction and Wi-Fi capabilities, for example, can help.
3. Chinese domestic vendors such as Huawei and ZTE have the independent capability to develop and drive Wi-Fi.

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

Ó 2008 CCID Consulting Co., Ltd.