1. China Mobile Limited Pricing Discrimination Group Four: Roy Hsiao; Zhou Zhijun; Xue Jing; Yin Liang; Ning Lili; Stephen Instructor: Zhang Qinhua 2008-11-10

2. © 2008 Fall Managerial Economics Presentation Outline 2 China Mobil Price strategy Introduction to China Mobile 11 3 The results from Price strategy 4 Conclusion

3. © 2008 Fall Managerial Economics Presentation Who Is CMCC China Mobile Limited Largest mobile telecommunication carrier in the world Public listed in New York Stock Exchange and HongKong Stock Exchange Being selected as “FT Global 500” by Financial Times “The World’s 2000 Biggest Public Companies” by Forbes Magazine Credit rating is A/Positive by Standard and Poor’s and A1/Outlook Stable by Moody’s Cover 31 provinces, regions and administered municipalities in mainland China and Hong Kong Total number of subscribers reached 399.5 million ( As of April 30, 2008) Total the annual revenue is about RMB 357 billion (As of 2007)

4. © 2008 Fall Managerial Economics Presentation Products Voice Service Local calls, Domestic long-distance calls International long-distance calls … Value-added vice Caller Identity, call forwarding, SMS, voice mail box, conference call … Video call Core Value Mobile Service GoTo ne M- Zon e Easy- own Main Services Major Brands

5. © 2008 Fall Managerial Economics Presentation Market position Leading Role In Mobile Phone Market In China

6. © 2008 Fall Managerial Economics Presentation Outline 22 China Mobile Price Policy Introduction to China Mobile 1 3 The results from Price Policy 4 Conclusion

7. © 2008 Fall Managerial Economics Presentation Main price policy: What’s the theoretical background of price discrimination in telecom industries? When a monopoly can assume the price elasticity of demand in separate group, it performs the third-degree price discrimination strategy. China mobile is non-exempt. Da Q’Q’ QaQa P/Q Pa MRa Db QbQb Q’Q’ P/Q Pb MRb Q3Q3 D MC QMQM P/Q MR P* MR MRa MRb Demand GoTone Demand M-zone and Easy-own Market Overall (Low elasticity)(High elasticity)

8. © 2008 Fall Managerial Economics Presentation Pricing policies for GoTone ( 全球通 ) Target Customer High-End Users (business people) Not sensitive to price Huge usage of voice service per month Demand for stable and high-quality network service World-wide network coverage and all services High Price Rate Postpaid account Fixed monthly fee with certain amount minutes of free usage. Relatively lower charge for each additional minute of outgoing call usage Provide some free value-added services Pricing Policies Enhancing customer loyalty Further segmentation: Platinum card, Gold card, Diamond card, Silver card. Offer credit system for points accumulation Exclusive services such as Airport VIP Services, free health check, Golf Clubs and etc. Approaches

9. © 2008 Fall Managerial Economics Presentation Pricing Policies for Easy-own ( 神州行 ) Target Customer Mid and Low-end Users Very sensitive to price Customized service package and world-wide network coverage Moderate demand for usage of voice service per month Demand for stable and high-quality network service Low Price Rate Prepaid account No fixed monthly fee Fixed charge for each minute of outgoing calls, higher than GoTone Higher charge for each SMS Higher long-distance roaming fee Price Policy Classifying Customers Easy to buy SIM card at airport, stores along the street. Enlarging customer base Advertisements Other Approaches

10. © 2008 Fall Managerial Economics Presentation Pricing Policies for M-zone ( 动感地带 ) Target Customer Young Fashionable People (age from 15 to 25) Sensitive to price. High demand for SMS service per month Customized value-added package service, music, game, etc Lower demand for voice usage and network coverage. Low Price Rate Prepaid account Low fixed monthly fee with hundreds of SMS free Low voice usage fee per min Pricing Policies Classifying Customers Packages of certain amount of SMS per month usage. Promotion place focus on campuses Enhancing the loyalty Organizing fancy activates: Supper star concerts etc. Approaches

11. © 2008 Fall Managerial Economics Presentation Segmentation By City Level Price Discrimination via different brands Price Discrimination via different Regions First-tier Cities (Beijing ， shanghai…)  Higher income level  A variety of demand for value-added services Second-tier Cities (Nanjing, Hangzhou …)  Relatively higher income-level Other Cities (Nanjing, Hangzhou …)  Focus on basic voice usage Rural Areas SegmentationPrice Policy  For same products, the pricing authorities are assigned to local offices according to local income level.  Provide different packages to attract local people.

12. © 2008 Fall Managerial Economics Presentation History price rate for each package M-zone 2003 … 2008 Base rates monthly20-30(SMS300-500) … 10-50(SMS120-1000) Local call0.4/min … 0.25(9:00-21:00), 0.12 Domestic call0.7/min … 0.35/min, 0.22/min Other optional packagesN/A … GoTone2003 … 2008 Base rates monthly50 … Local call0.4/min … 0.4 Domestic call0.7/min 0.07/sec, 0.30/min Other optional packagesN/A … Easy-own2003 … 2008 Base rates monthly0 … 0 Local call0.6/min … 0.6 Domestic call0.7/min … Other optional packagesN/A … Data from Beijing China Mobile

13. © 2008 Fall Managerial Economics Presentation Other Price policy: Why a monopoly in telecom industries develop price discrimination strategy? D=AR MC Even a Monopoly is hard to get complete information about its market demand. The second-degree price discrimination is to determine product price based on the size of demand. (See left picture) In this case, the monopoly could invent three price types (0~ Q 1, Q 1~ Q 2, Q 2~ Q 3 ). Under the second-degree price discrimination, consumers get the some demand(buyer) surplus. Q2Q2 Q1Q1 P/Q P1 P2 MR Q3Q3 Ⅰ Ⅱ Ⅲ 0

14. © 2008 Fall Managerial Economics Presentation Outline 2 China Mobile Price Policy Introduction to China Mobile 1 33 The results from Price Policy 4 Conclusion

15. © 2008 Fall Managerial Economics Presentation The Results from Price Policy

16. © 2008 Fall Managerial Economics Presentation Growth Rates

17. © 2008 Fall Managerial Economics Presentation Summary  Price Differentiation:  Price Segment Discrimination  More customized packages  Increasing # of mobile service subscribers  Capturing untapped consumer surplus  Revenue maximization MR P1 Q2Q2 Q1Q1 Q3Q3 0 P/Q P2 Consumer Surplus

18. © 2008 Fall Managerial Economics Presentation Q & A Thank You! Any Questions?