Liu Chun 2010955071

Industry structure analysis for “Smartphone &

Application Store” market in Hong Kong

In a nutshell
Hong Kong's highly developed mobile communications network and a wide range of
Wi-Fi coverage has brought huge business opportunities to the smartphone market.
Here I introduce the major smartphone operating systems and the associated
application store briefly, analyze the industry structure and market competition of
smartphone , and finally draw a detailed conclusion of key research findings.

I. Introduction of Smartphone and Application Store

A comparison of Smartphone, Feature phone and Ordinary

mobile phone

Unlike ordinary phones with basic functions such as calling and texting alone,
smartphones and feature phones may be thought of as handheld computers
integrated with a mobile telephone, but while most feature phones are able to run
applications based on platforms such as Java ME, a smartphone usually allows the
user to install and run more advanced applications.

The most significant feature of a smartphone is that it has an independent

operating system. It is able to support users to install software, games and
other procedures which are provided by third-party service providers. In
addition, the functionality of a smartphone can be expanded through such programs.

Major Smartphone OS and the associated Application

Store

Figure1 plots the global market share for Q4 2010 of the major smartphone OS.

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Figure1. Global smartphone market share for Q4 2010

Source: Wikipedia

Later in 2007, Apple introduced its first iPhone. The Apple iPhone uses an operating
system called iOS. In July 2008, Apple created the App Store with both free and paid
applications. The App Store can deliver smartphone applications developed by third
parties directly to the iPhone over WIFI or cellular network without using a PC to
download.

The Android operating system is an open source platform backed by Google. The
software suite included on the phone consists of integration with Google's proprietary
applications, such as Maps, Calendar, and Gmail, and a full HTML web browser.
Google launched the Google’s Marketplace in October 2008.

The Windows Mobile system does support both touch screen and physical keyboard
configurations. In October 2009, Microsoft launched its Window's Marketplace for
Mobile

RIM’S Blackberry is focused on easy operation and was originally designed for
business. Currently its app store, Blackberry's App World has over 15,000
downloadable applications.

II. Overview of market competition of Smartphone and

Application store

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Smartphones start to dominate Hong Kong mobile market
According to a survey from TNS Global Telecoms Insights, until June 2010, almost
half (48%) of respondents in Hong Kong own a smartphone, more than double
the global rate of 23%.

Figure2. The proportion of smartphone users in Hong Kong for 2009 and 2010

source: TNS Global Telecoms Insights survey

Smartphones are owned by a very specific group of consumers - mainly tech geeks
and business ‘road warriors’. They are increasingly accessing features such as
pull email, push email, mobile internet, and Microsoft Office applications over
last year. There is also demand for Qwerty keyboard but more popularly for
Touchscreen especially.

3G and Wi-Fi truly put the Internet into a portable

smartphone
Hong Kong issued 3G licenses in 2001 and launched 3G services in 2003. Over the
past years, the application of 3G mobile communications network had not been well
developed and implemented. The emergence of smartphones has finally broken this
embarrassing situation. The combination of the 3G and smartphones provided
consumers with a more convenient, free and efficient means of access to
Internet and truly put the Internet into a portable cell phone.

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In addition, in Hong Kong, Because of the very good Wi-Fi coverage, the regional
wireless broadband network will often replace the 3G network to support the Internet
services of smartphone.

Increasingly fierce competition in Hong Kong’s

smartphone market
To take the iphone4 for an example, the CSL, SmarTone, Hutchison 3 HK, PCCW
Mobile all launched their own package plans for iphone4。Contents of package plans
are similar, basically include: Local data usage, basic and intra voice mins , SMS,
Wi-Fi, contract months, etc. Smartphones can bring lucrative application of 3G
data services, but also can bring the huge gains through large amount of data
traffic. Therefore, a more favorable price and better services are often provided
by Hong Kong’s mobile operators to attract consumers and compete with each
other.

In 2007, the first 3.5G mobile services was introduced to Hong Kong and both CSL
and SmarTone upgraded the 3G networks to the HSDPA of 3.5G, where the data
transmission speed was more than ten times faster than ever before.

In 2010 CSL has launched the world's first combined 4G LTE/DC-HSPA+

network in Hong Kong. LTE will significantly enhance the network capacity and
speed. It is obviously that more advanced mobile communications network is
also a significant aspect of competition.

In addition to the race between mobile operators who provide services for smartphone
subscribers, smartphone manufacturers are also present in the increasingly
fierce competition. Apart from Apple iPhone, BlackBerry, and other professional
smartphone vendors, Nokia, Samsung, LG, Motorola, Sony Ericsson, HTC are
sparing no effort to enhance competition on this "attractive cake".

Hong Kong Government provides free Wi-Fi services for local citizens by setting Wi-Fi
wireless Internet facilities in the designated government premises. This measure will
also promote the development of Hong Kong’s smartphone market.

III. Summary of key research findings

Why Smartphone and Application Store are becoming so

popular?

Smartphones have evolved so much that they have many technology

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developments such as stronger input capabilities, larger screens, reliable and
unlimited Internet access, and powerful location awareness.

Importantly, smartphones now provide access to thousands of mobile applications,

which offer a wide range of innovative services such as communication,
entertainment, news, social network and travel. Unlike some of the telephone based
automated systems of the past, smartphone device applications using touch, text and
talk interaction are fast and easy to use.

In terms of customer needs, Smartphones possess many capabilities for its

users. Voice is no longer the only primary mode of communication; smartphones
include text, touch and visual inputs and outputs. The array of applications provided
by such mobile devices allow for customers to choose which mode of communication
works best for them. The greatest advantage is that smartphones are mobile and
always connected to the Internet, thus customers are able to stay connected and
retrieve information when and where they need it.

Key factors that will support the competition and market

development

Greater productivity, faster and efficient communications, data-on-demand and data

traffic packages launched by mobile service providers are just four key factors
propelling the development of smartphones and application store. In addition, fashion
style and price also contribute to the rapid growth of smartphone and application store
in Hong Kong.

 With free Wi-Fi courage in many places of Hong Kong, it is very convenient for
users to have access to the Internet by using smartphone.

 Compared to the quite high price of smartphones in the past, smartphones are
now getting cheaper due to the fierce competition among the operation systems.
Most are less than 5000 HKD, many of which are more or less 3000 HKD. It is
obviously an acceptable level to the public. Meanwhile, the subsidies and
promotion of mobile operators are tilted to the smartphone.

 In Hong Kong, there are a lot of smartphone brands and products in the market.
Various technology and new applications are updated very fast, and the
promotion of vendors and the media also motivate the mobile users to turn to
smartphones when they are purchasing or replacing a cell phone.

 The last but the most important point is Hong Kong is a stylish and dynamic
international metropolis. Many people in Hong Kong view smartphones as

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 not only a fashion statement but also a lifestyle statement. Whether for
commercial purpose or for normal life entertainment, smart phone is a very good
option for them.

Key barriers that will affect the competition and market

development

The biggest problem about smartphones is that it can be hacked so easily. Through
viruses and worms, hackers can easily access the cell phone’s operating system.
What’s even worse, there is no developed software yet that can counter hackers
in smartphones.

In addition to the factor above, throughout the entire smartphone market in Hong
Kong, different operation systems are faced with different barriers that will affect their
competition and development.

 All along, some high-quality billing software has not been ported to Android yet. It
will be an obstacle to a long-term development, since the most important function
of a smartphone is the ability to download different software in order to meet the
needs of various subscribers.

 In terms of Apple, it was often not able to provide adequate supply of iPhone.
Although it to some extent stimulates consumers’ will of purchase, but in the long
run this will turn into an obstacle to its development.

 Take RIM’s BlackBerry for an example, propaganda is also a significant factor to

maintain market competitiveness. Obviously as a professional smartphone
manufacturer, BlackBerry's sales practice in Hong Kong is too dull, which
seriously hampered its development in Hong Kong.

Smartphone brings both opportunities and threats to

mobile service providers
Smart phone is almost synonymous with data traffic, the data traffic will always show
amazing growth in the places where smartphones appear. According to the statistics
of relevant institutions, the data traffic generated by an iPhone is about 45 times of
that generated by an ordinary mobile phone. The explosive development of
smartphones and application store brings huge gains to mobile service
providers.

However, the rapid development of smartphones could also become a double-edged

sword for mobile service providers. The increasing usage of smartphone runs out

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of the scarce radio spectrum rapidly. No matter how the existing mobile
communications network is expanded, it will still not be able to meet the
demand of the huge growth of data services. There is no doubt that the mobile
data industry is becoming a victim of its own success.