China's Internet subscribers are increasing rapidly as broadband communication develops quickly. Statistics from reports on 21st China Internet development status by CNNIC show that the number of Internet subscribers has reached 253 million by the end of June 2008. Internet user scale in China has exceeded USA, ranking 1st in the world. Growing user scale drives development of China's Internet industry. CCID Consulting statistics show that Internet industry scale has reached 116.32 billion yuan in 2007, keeping a growth rate of more than 30%.
Operators pay close attention to the rapid growth of Internet industry. The convergence of IT and telecommunication urges operators to under go more business transformation. Internet value added services are regarded as a possible breakthrough point. In May, 2005, China Telecom launched 'China Vnet' in Guangdong, the company's first attempt to enter Internet value added service field. In recent years, free Internet value added services are trussed up in 'One Home' package, which is dedicated for family users.
Compared with the booming Internet industry, the development of Internet value added services provided by operators has not been satisfactory. Video websites impact Vnet services greatly with the advantages of easy to change and low copyright risks. Facing diversified and dynamic user demands, user scale and operating income of Vnet grows slowly and failed to perform expected. The development of free Internet value added services in the 'One Home' packages is also in dilemma. CCID comments that Internet value added services have lead to embarrassments for China's operators.
This awkward situation lies in poor control force to Internet industrial chain of fixed network operators in an open network environment. Internet companies can develop diversified Internet services without the operators' interruption basing on close relationship with users' demand. Sina, Tencent, Baidu, Shanda, Alibaba, and other leading brands have dominated in portal websites, instant messaging, search engine, online game, and e-commerce respectively, which brings great pressure to operators when acting as Internet service providers.
After telecommunication reorganization, operators in China all own full service operating licenses. When the convergence of IT and telecommunication enters mobile communication, operators will have new chances to develop Internet value added services. It is difficult to make Internet value added service a new growth point as fixed network operators cannot control the industrial chain. On the other hand, popularization rate of broadband communication in China is low, which provides huge market space for scale development. As broadband access market is getting more competitive, Internet value added services will be an inevitable choice to deliver differential services and improve service level. The main reason for operators to develop Internet value added services lies in improving user loyalty. Getting along with the development of full service operating and mobile Internet, operators have enough control force in the half open network environment. Mobile Internet will the core of all services provided by operators and Internet value added services will be a most important growth point.
Benefiting from advantages in user number, capital, and brand, operator will be a strong challenger to Internet companies and bring great impact on Internet industry. It is difficult for operators to win the competition with Internet companies in existing developed fields, such as competition with Tencent in instant messaging, competition with Sina in portal website. It is necessary for operators to take existing advantages and make deep cooperation with IT enterprises to achieve win-win effect when developing Internet services. According to Yu Zhoujun, Deputy General Manager of the Communications Industry Research Center under CCID Consulting, operators can choose the following areas:
1. Family user oriented contents, such as education, health care, and medical care. Operators can provide customized services with support from local schools, hospitals, and other public resources, which will attract more family users effectively.
2. Local websites. Operators can provide country level local life information related websites, making use of branches all around the country.
3. Green and safe surfing environment. Online anti-virus will be the best choice as users trust operators' brand.
4. Industrial vertical search engine and e-commerce. Operators can provide billing functions easily.
5. Internet services tied up with mobile value added services.
6. Internet services for special segment users, such as spoken websites for old people.
