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China PHS Market Update -- by BDA China Ltd. --
- Key Trends in PHS   Source: the Ministry of Information Industry (MII) Chinafs PHS subscribers increased 2.56 million to 55.63 million in June, up from 53.07 million in May, according to the the Ministry of Information Industry (MII). Junefs additions were 13% lower than May. PHS additions accounted for 50% of new fixed-line users nationally in June, compared with 60% in May, which we believe is due to seasonal factors (May day holiday promotions) and a slowdown in local PHS promotions. Boosted by improving network coverage, PHS subscribers will likely grow at 2-3 million a month in 2H 2004. Market Update: China Telecom vs. China Netcom in PHS Market 
The previous China Telecom monopoly launched its PHS business in Zhejiang province in 1998. Before restructuring in 2002, China Telecom focused on developing markets in the countryfs southern 21 provinces, where the current China Telecom is based. China Netcom, on the other hand, operates in the northern 10 provinces, where PHS services were launched as late as 2000 and 2001, lagging significantly behind China Telecom. However, China Netcom has recently improved its share of the PHS market vs. China Telecom reaching 35% in June 2004, compared to just 15% in 2001 when it began network build-outs. BDA believes the two operatorsf market share in PHS will remain stable in the medium term, as it reflects the market size of the geographical areas each serves. Operator Activities Operators Improve PHS Network Coverage According to press reports, China Telecom plans to invest RMB 700 million (USD 84 million) between May and August to improve PHS network coverage in Guangdong province. China Telecom will deploy a total of 13,500 cell stations in Guangdong - 12,000 cell stations had been deployed by the end of July. China Netcomfs Beijing branch plans to add 2,000 cell stations in Q3 2004 from the original 16,000 in urban Beijing to improve network coverage. It is reported China Telecom plans to optimize network coverage in Hangzhou, Zhejiang province in Q3 2004. Improved network coverage will help keep PHS subscriber growth momentum, but operators are likely to sign fewer equipment contracts in 2H than in 1H 2004, due to the huge investment in 1H by both carriers, particularly China Netcom ahead of its IPO currently underway. PHS is Now the Main Growth Driver for Fixed-line Operators in Both Affluent and Low-tier Provinces PHS users in Guangdong reached 5 million by July 16 according to China Telecom. China Telecom gained 1.6 million new PHS users in 1H 2004 in Guangdong province, similar to the subscriber additions in 1H 2003, according to China Telecom Guangdong. Local operators continue to launch aggressive promotions in Guangdong province. For example, in Guangzhou city some packages for PHS offer local call tariffs of RMB 0.02-0.04/min., compared with the traditional tariff RMB 0.11/min. At the end of May, total PHS subscribers in Guizhou province reached 1 million, representing 25.2% of total fixed-line users there. Fixed-line penetration in Guizhou province was 8.7% at year-end 2003 (the lowest in China), compared to a nationwide average of 21.2%. Beijing Communications Announces change in PHS strategy An official with Beijing Communication recently said it would stop offering bundled packages. To spur take-up of PHS services, Beijing Communications initially offered aggressive promotions and heavy subsidies. With the PHS subscriber base reaching 900,000, Beijing Communications has begun switching its focus from low tariff offerings to more profitable PHS value-added services, including mobile secretary and ring-back tones. The new services are expected to be launched soon and will be priced lower than their GSM/CDMA counterparts. |
