There is little doubt that the expansion of "Little Smart" wireless phone service will continue to score subscriptions this year given its strong growth momentum in this world's most populous market.
Many experts and insiders believe that although it is a transitional technology, the wireless phone service offers service providers and subscribers unique and attractive advantages when competing with wireless services such as GSM and CDMA.
The "Little Smart", also called Xiaolingtong, is built into existing fixed-line networks and lures users with low per minute rates, one-way charges and cheap monthly fees.
"The wireless phone service is likely to continue to register a sound development this year since it meets customer's demand for lower telecom rates," said Chen Jinqiao, director of the China Academy of Telecommunications Research under the Ministry of Information Industry (MII).
"It is unlikely to withdraw this year as more and more subscribers are enjoying the service in spite of surging complaints about its stability," he added.
Chen's remarks were echoed by a report made by Analysys International Corp, a global telecoms consultancy and research company, indicating Xiaolingtong is going to maintain its high momentum and recruit 30 million new subscribers by the end of the year.
Since regulators gave Xiaolingtong free rein to sell its services across China last year, it has registered a huge expansion.
Analysys International's report found that Xiaolingtong subscribers reached 35.5 million last year.
The market topped 16.1 billion yuan (US$1.9 billion) last year, with equipment makers benefiting greatly from the development including UTStarcom, ZTE Corporation and Lucent Technologies Qingdao.
With its comparatively low telecommunication fees, Xiaolingtong is reshaping the market share of mobile telecommunications.
The communication fee for Xiaolingtong in Beijing, for example, was set at 0.11 yuan (1.3 US cents) per minute, compared to 0.40 yuan (4.8 US cents) per minute for China Mobile's GSM Gotone service.
"The telecommunications fee for the second generation of mobile telecommunications (including GSM and CDMA) is no longer adaptive to the market," said Chen.
Nevertheless, with the fierce prices wars among the major telecom operators, Xiaolingtong is now gradually losing its advantage of providing cheap rates.
"That's why we come to provide more competitive services to our subscribers," said Pan Wei, deputy general manager of the Marketing Department of Beijing Communication Corp, a subsidiary of China Netcom and operator of Beijing's Xiaolingtong system.
The company has so far registered a total of 900,000 subscribers since last year.
"We are going to enhance the density of our network deployment in the capital city to provide better service in the second half of the year," he said.
According to him, the company has so far built up more than 17,000 base stations.
Meanwhile, the company plans to enhance indoor network deployment within 400 buildings this year.
"Besides, to enhance the value-added service to subscribers is another key strategic point for us to ensure our future expansion," he said.
The company is currently testing many of its value-added services such as ring back tone service.
"We are going to launch the service in the following months," he said.
Industry experts believe the company's action echoed the remark of Leng Rongquan, vice president of China Netcom, early this year that the company is gradually improving services for its Xiaolingtong subscribers instead of just recruiting new subscribers.
"By doing so, we will try to avoid price wars by providing more attractive services," he said.
Since this year, telecom operators are working intensively to improve the networks to improve their competitiveness.
In May, China Telecom signed a contract valued at a US$21 million with UTStarcom Inc to expand and optimize the IP-based PAS (Personal Access System) network in the cities of Suzhou and Taizhou in Jiangsu Province.
The contract also included additional PAS handsets to meet growing subscriber demand.
"PAS continues to be a key revenue driver for both China Telecom and China Netcom," boasted Wu Ying, chief executive officer and chairman of UTStarcom China.
"Despite its tremendous subscriber growth rate to date, we believe that the market demand for PAS is still very strong, as only 4 percent of the population currently subscribe to PAS service."
China Telecom also clinched an agreement of US$80 million with Lucent Technology for its Xiaolingtong services.
Analysts believe that enhanced investment on Xiaolingtong reflected that Xiaolingtong will continue to be a hotspot in the domestic market.
Dai Chunrong, an analyst with China Securities, stressed that value-added services should provide new profit opportunities for telecom operators as Xiaolingtong enjoys only a small advantage in frequent price wars.
Early this year, the MII said it will gradually loosen its control over telecommunications fees this year to further boost the development of the country's telecommunications industry.
As a result, almost all telecom operators have turned to slash telecommunications prices to grab a larger market share.
To further slash prices is likely to be one of the most competitive way for telecom operators to attract more customers, Dai said.
For terminal makers, Dai said the design which includes improved figuration, capability and function of the terminals should be enhanced.
Meanwhile, manufacturers should enhance their research and development abilities to cut costs.
Zhang Yadong, general manager of Huawei Technologies' Xiaolingtong Products Department, said terminal users should rely on three key aspects: technology, function and free from environmental pollution.
Last month, ZTE kicked off a Xiaolingtong handset V81. With the application of synchronous seamless switch technology, it has successfully ruled out pauses in voice transmission while making a phone call.
"However, the growth momentum is likely to slowdown when the Chinese Government starts to issue 3G licences," Chen predicted.
"But the slow down won't be reflected immediately as 3G will first target at high-end customers," he said.
According to the report from Analysis International, growth momentum won't slow down until next year.
Xiaolingtong subscribers are probably to surpass 100 million by the end of 2007.
Industry experts believe what matters most is when 3G licences will be issued and how the 3G-based services are developed.
It is widely speculated that the Chinese Government will to release 3G licences next year.
Both China Telecom and China Unicom will secure mobile licences while the Chinese Government starts to issue third generation of mobile communications licenses.
Analysts believe that both China Telecom and China Netcom are likely to have two alternatives as there may be not enough 3G terminals and killing applications next year.
As a result, both the two fixed-line operators are likely to continue to work on the Xiaolingtong network to consolidate their low-end customers.
That means the expansion of "Little Smart" wireless phones will continue to be one of the most effective ways for domestic fixed-line operators to bite into the wireless market this year, according to Chen.
On the other hand, as the development of 3G should be "step-by-step," mainly targeting high-end customers, there is still a room for Xiaolingtong.
Si Furong, managing director of China Telecom Corp Ltd, a listing arm of China Telecom, believed there is still market potential for the development of Xiaolingtong as it meets the demand of low-end customers.
Government figures indicated that Xiaolingtong services are currently available in more than 400 cities nationwide with subscribers reaching more than 50 million.
(China Daily July 21, 2004)
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