US-based telecommunications equipment producer UTStarcom will move into mobile phone business in China by leasing a handset manufacturing license from a local company, China Daily reported Tuesday.

"We plan to launch a mobile phone model in China based on the GSM (global system for mobile communications) standard this month," Richard Feng, marketing director of UTStarcom (China), was quoted by the paper as saying.

This marks a major strategic shift for the world's largest vendor of equipment and phones based on the limited mobility service, also known as personal handy system (PHS) and Xiaolingtong in Chinese.

UTStarcom has filed an application with Chinese regulators for a licence to manufacture and sell mobile phones in the country, Feng said.

Before that it will lease the license from a local firm named CECT, he added.

The company released the new plan when the Xiaolingtong business is beginning to taper off.

The entry into the domestic mobile phone market would help UTStarcom pick up some slack from slowing Xiaolingtong revenues, said Elaine Su, an analyst with research firm GFK Asia.

In the first three months of last year, the fixed-line carrier China Telecom recruited 1.8 million new users of Xiaolingtong per month and the figure dropped to 1.2 million per month in the last quarter.

Besides a general market slowdown, UTStarcom is facing fierce competition from other vendors such as Huawei Technologies and ZTE Corp, said Su.

China now has about 65 million Xiaolingtong users. It cost about 0.2 yuan (2.4 cents) per minute to talk on a Xiaolingtong phone and the service is only charged when users make phone calls. A mobile phone user will spend 0.4 to 0.6 yuan (4.8 to 7.2 cents) per minute and it is charged when he or she makes and receives calls.

But Xiaolingtong users are complaining about the stability of phone calls and they are unable to use the phone when traveling other cities.