A Mandarin pop song titled "Mice Love Rice" has become an unlikely anthem for change in China's corporate world. Released on the Internet, the song became an online summer phenomenon last year before being picked up by radio and TV play lists. The catchy tune, which was downloaded to more than 10 million mobile phones in a year, gen-erated revenues equivalent to the sale of about 700,000 CDs and jolted executives to rethink the importance of wireless technology to the distri-bution chain in China.

Anyone with a mild understanding of emerg-ing technology trends and companies needs little convincing of the opportunities created by the development of the Internet in China. One of quick-footed was JP Gan, chief financial officer at Kongzhong, a Beijing-based provider of ad-vanced second-generation (2.5G) wireless servic-es. Formerly head of China operations at venture capital firm Carlyle, Gan left a glittering career in finance to help steer the firm into the league of TOM Online and Sina at the head of China's new generation of brash, young technology com-panies. Taking a job at Kongzhong was a good move, says Gan: China's market for wireless data such as SMS, games and ring tones has grown amazingly fast, to US$5.26 billion in 2005. It is expected to grow to more than US$9.2 billion by 2008, according to research firm Gartner.

Those growth figures powered Kongzhong, which employs 780 design and sales staff, to a 64 percent rise year-on-year in the third quar-ter of 2005, with earnings topping US$20 mil-lion. Mobile phone games accounted for a large chunk of that figure, but the local market is still small compared to Japan, says Gan. "Opera-tors' infrastructure isn't as good as Japan's yetˇ­ There's a lot of hopes here for SMS, MMS and WAP products."

China's mobile phone operators are improv-ing their systems, and mobile phones and color displays here are fancier than ever, but Kong-zhong, like most other tech firms in the Chinese market, look to the long-delayed introduction of third generation (3G) mobile technology in Chi-na. "Products may be similar in a 3G environ-ment, but file sizes can be much larger in each game, so we can have more graphics. Users will be able to download a five-megabyte file in 50 seconds."

Build it and they will come

Rich-graphic messages and games only work if the infrastructure to run them is in place. Even though his firm is only two years old and run-ning on US$20 venture capital, veteran technol-ogy executive Yuval Mor has made China the center of his ambitions for Silicon Valley-based GO Networks, which provides telecommunica-tions companies with Wi-Fi broadband wireless access systems that carry data, voice, and video. The firm is running trials of its wireless technol-ogy in several sites in China, including the Uni-versity of Posts & Telegraphs in Beijing. GO is offering China the technology to provide whole complexes or towns with high-speed wireless Internet access. "Acceptance of our technology is encouraging," says Mor, who's focused his sell on towns in northeast China, headquarters of major state-owned companies.

The scale of the market here and China's eager attitude towards mobile and broadband technology has convinced the GO sales chief that the country will move fast in taking up Wi-Fi and its more advanced successor WiMax. "China is a very strategic market, and therefore we have a lot of resources invested here," says Mor. Though his company currently centers its R&D in Israel, GO is keen to do R&D and manu-facturing in China. "Absolutely, the talent is here for R&D," says Mor, who says he's negotiating a joint venture to develop software with a "major" Chinese company.

Local leader: TOM

It was a happy few months lately for one of China's fastest-growing tech companies, TOM Online. Revenues at the Chinese firm reached US$45.94 million in the third quarter of 2005, up 46 percent from the same period last year. Net income, at US$12.8 million, was up 80 percent from the same period last year. Wireless Internet service revenues accounted for the bulk - US$43 million - a 53 percent increase over the same period last year and 94 percent of the company's total for the quarter.

But with SMS revenues still making up 41 percent of TOM Online's total wireless Internet revenues for the quarter, the company is seeking alternative earners. Hence the recent fanfare sur-rounding the launch of the company's Internet music brand, Wanleba, which allows musicians to upload songs for distribution. A new joint venture with Skype to develop next-generation communication services in mainland China and a deal to become the wireless and online pay-ment portal partner company of UMPAY (owned by China Mobile and China UnionPay) mobile payment service both hint at TOM's wireless am-bitions.

Judging by balance sheets at Kongzhong and TOM, the potential of wireless services in China appears limitless. Interactive Voice Response (IVR) and Color Ringback Tones (CRBT), based on songs which users periodically purchase both contributed healthily to TOM's revenues in the third quarter of 2005. But it could be do-ing better when China declares its intentions for 3G. TOM's revenues from multi-media messaging (MMS) and wireless mobile Internet access have both remained negligible since mobile Internet services remain off-limits until 3G licenses are announced.

Driving economic growth

China needs mainstream wireless access if it's to power future economic growth and deliver on promises to match neighboring India's ability to attract high-value IT investment. "China's elec-tronics manufacturing industry really wants to move beyond the stereotype of make-it-fast and keep-it-cheap," says Raymond Leung, regional president of China operations at Avnet, an elec-tronics marketing multinational. China can close the gap on India with its growing army of creative engineers and internationally recognized brands, but it needs a "first-world communications in-frastructure", says Leung, whose firm has been ranked 11th in the China Information Week list of the 100 best users of information technology among large-scale companies doing business in China.

Yuval Mor reckons he has what China needs to become a wireless leader. There's a clear link worldwide between mobile technology and eco-nomic growth, he argues. "Some people attri-bute China's acceptance of GSM to GDP growth. People are aware of the importance of all of this for future economic growth." But China's accep-tance of advanced wireless systems, such as Wi-Fi, is critical for future investment and economic growth across China's regions, says Mor. "People want mobility, they want to take technology everywhere. The productivity gains will be very critical."

Bank on it

The business of banking is also being transformed by wireless technology. Smartpay, a mobile bill payments system offered by Fufeitong Shanghai Co Ltd and Smartpay Jieyin Ltd, covers nearly every utility company and bank in the Shang-hai municipal region. Once registered, users can pay gas or water bills by sending bill codes by SMS to SmartPay, which processes payment from the user's bank account to the utility. Consider-ing the service covers 15 phone, gas and util-ity companies with residential billings in excess of RMB1.25 billion and business customers in excess of RMB10 billion per month, there's ser-vice fees to be earned, says Greg Shen, Smart-Pay's CEO. "The level of convenience afforded to customers and the service's broad reach will clearly encourage rapid uptake in usage." Users can also use Smartpay's automated mobile top-up, ticket purchasing and real time credit transfer between mobiles.

But wireless technology could go further, says Tony Delgado, Asia Pacific Business Devel-opment Director at Ember Corporation, whose ZigBee wireless radio technology is capable of operating home appliances, controlling industri-al processes and monitoring medical conditions and asset management. "We expect the technol-ogy to be used in China to streamline production processes and to manage transport systems," says Delgado.

A new breed

Kongzhong and TOM have plenty of competi-tion - 1,000 players at Gan's estimate. Growth in mobile value-added services grew in the third quarter of 2005 to reach RMB4.87 billion, ac-cording to IT consultancy Analysys Internation-al. But only 500 companies are licensed to pro-vide the services, and few are very active, says Kongzhong's JP Gan. But with average annual growth in the sector averaging 20 to 30 per-cent, wireless value-added services like games and music downloads will be "the new e-com-merce," says Gan.

But unlike the local online shopping busi-ness, where eBay battles Chinese rivals, so far Chinese companies control the wireless value added market, though a couple of Japanese companies have acquired Chinese companies on the index. UK company Monster Mobile has taken a couple of acquisitions too. "Competi-tion from American firms is not as serious," says Gan. "The US lags behind on mobile and data content."

That's too bad, because China's mobile us-ers are modish and demanding. "Delivering compelling content in the visual mobile age has become crucial to local operators' prof-its," says Bill Gajda, Chief Marketing Officer for the GSM Association (GSMA), a trade as-sociation representing the global mobile in-dustry, including Chinese mobile operators. In November, Analysys International predicted in a report that PTT (push-to-talk) will become a major source of earnings on 3G mobile appli-cations in China, with user numbers to reach 8 million by 2009.

Loosening regulations

China's regulators seem to be getting in step with the market's wireless ambitions. When drafts of China's Eleventh Five-Year Plan for the telecom industry surfaced recently there was relief that regulators appear to be turning from former pre-occupations with the macro management of the industry to maneuverability of services - wire-less has, it appears, won the argument with the regulators, too. The plan, still in final drafting, appears more focused on consumer demands and is a sign that regulation will be loosened gradually as regulators step back into the role of "industry development guides," suggests says Sun Lilin, a senior analyst at Analysys Interna-tional, a Beijing-based IT consultancy. A section titled "Convergence of 3 Networks (telecom, Internet & Cable TV)" shows the government's positive attitude towards industry development, says Sun.

Imbalance in communications infrastructure between different regions is also a focus of the Eleventh Five-Year Plan. With China's Midwest, in particular, to get a telecommunications over-haul, mobile and Internet users in small and medium cities there will become a source for growth in user numbers, predicts Yuval Mor. The government, says Mor, has accepted the importance of wireless technology to economic development. "We are beyond the point of no return. How critical these applications are to China's growth is now clear. China is now mov-ing towards the ability to run these applications anywhere."

Money in music

As mobile and Internet-enabled devices become China's mainstream media outlets, partnerships with operators and major music labels will in-crease. TOM, after all, can offer a huge wireless and Internet user base to China's music industry, says Jay Chang, Chief Financial Officer. The "Mice Love Rice" hit tune, he says, shows how wireless mobile and Internet technology can transform industries. "Everyone wins by selling music via wireless services, like ringback tones and interac-tive IVR - copyright is protected, artists get paid and new media companies get a profitable busi-ness model."

Having taken the right bet with Kongzhong, JP Gan is ready to take his company's fortunes west. Kongzhong's future growth depends on better mobile handsets and digital infrastruc-ture, says Gan. But the introduction of 3G would also make it easier to offer more billing services and content. Kongzhong is gearing up for the announcement. "We are ready; we have a few things in the pipeline. We'll have more graphics certainly."

Lots of Potential

China could be an El Dorado for European IT and Telecommunications firms - if 3G licensing is finalized and foreign firms get a little more access, says Jari Vaario from Nokia, Chairman of the EU Chamber's IT & Telecommunications Working Group. A tech-savvy China de-termined to use cutting-edge communication technology to develop its under-performing western regions is a market and a production base for firms which have already tested their systems in Europe and other markets, says Vaario. But licenses for outsiders seeking a share of China's burgeoning market in value added services - sms, mobile games, wire-less internet, etc - are hard to come by, says Vaario. Of 11,000 licenses granted, only two have been to foreign-invested joint ventures. "Foreign entities have effectively been discour-aged from making applications," says Vaario. Without knowing China's full intentions on 3G licensing, it's very difficult for foreign operators to select the best potential partners among lo-cal operators. And since local partner choice is restricted to those who already have licenses for the service which the JV proposes to offer, foreign firms are limited to only two Chinese mobile operators as potential partners. Says Vaario, "Streamlining the licensing process to international best practice to allow foreign companies access would be good for Chinese consumers and for China's position as an e-commerce hub."