Cheaper Portable Phone Cutting into Large City Market

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Last updated at: (Beijing Time) Friday, June 21, 2002

Cheaper Portable Phone Cutting into Large City Market

China's two mobile phone carriers are facing a growing threat from a wireless handset company that is experiencing booming development this year.

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China's two mobile phone carriers are facing a growing threat from a wireless handset company that is experiencing booming development this year.

Little Smart, technically named PHS (personal handyphone system), has been talking its way into China Mobile and China Unicom's markets in many provinces and is now eyeing metropolises like Beijing.

"Little Smart will soon enter Beijing and Tianjin to allow more people enjoy its cheap wireless communications services," said a source close to China Netcom, the fixed-line carrier in northern China.

Looking exactly the same of a mobile phone, the PHS handyphone provides almost the same functions as its cellular counterpart. Based on the fixed-line telecom network, PHS uses different transmission technology than mobile telecom. Provided by fixed-line carriers, PHS has become a strong rival to mobile phones.

Difference: charge standard

The major difference between PHS and mobile phones lies in the charge standards, with PHS charging much less, but offering lower transmission quality and no roaming services outside a limited range.

Initially developed in Japan, PHS has been flourishing in China in recent years. It came to China in 1997 and had attracted 5 million users by the end of last year.

Snubbed several times by the Ministry of Information Industry (MII), which governs the sector, PHS quietly began attracting customers between the fixed-line telecom carriers and the mobile phone industry.

MII's attitude to PHS is vague. On the one hand, it is worried that PHS may hurt the mobile carriers, on the other, it is worried that fixed-line carriers lack the attraction of new services.

The most important new revenue source for China's fixed-line carriers, PHS is attracting many customers who initially planned to buy mobile phones.

Advantage: lower prices

With its major advantage in call prices - about 0.10 yuan (1 US cent) per minute, with only the calling party paying versus mobile phone's 0.40 yuan (5 US cents) per minute with both parties paying - people tend to ignore Little Smart's obvious flaw in voice transmission quality.

Little Smart is eroding mobile carriers market wherever it goes. Complaining that mobile carriers charge too much, many customers are opting for PHS rather than a mobile phone.

Without the prospect of there being no new mobile telecom licences in the near term, fixed-line telecom carriers are betting their futures on PHS, hoping Little Smart can increase their average revenue per user (ARPU).

China's major fixed-line carriers, China Netcom, China Telecom and the smaller China Railcom have all signed contracts to provide more PHS services.

According to fixed-line carrier sources, PHS users reached around 8 million recently and will very probably surpass 10 million before the year end.

PHS used to be marginal equipment that was limited to small cities. But starting from last year, it has explored more and more metropolises and is now eyeing Beijing.

The three PHS vendors, US-based UTStarcom and Lucent and China's ZTE (Zhongxing Telecom) have all signed contracts with the fixed-line carriers.

Lucent this week announced an expansion of PHS in Shandong Province worth US$18 million. ZTE is in final discussions with fixed-line carriers in several metropolises in the country's northern regions. UTStarcom, which is the biggest among the three, controls 60 per cent of all the PHS users around the country and has vowed to expand the market share this year.

The main reason behind the rapid development of Little Smart is simple, said Zhang Xinzhu, an economist with the China Academy of Social Sciences.

The charge standard for mobile telecom services is too high and should be cut significantly.

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