Key Trends in China’s PHS Market


3G

3G licensing has been further postponed in China and is now unlikely to occur before late 2008 or 2009. TD-SCDMA, telecoms industry restructuring, and the Olympic Games are the three key issues that have impacted the timing of 3G licensing.

TD-SCDMA, the domestic 3G standard, is still being trialed by China Mobile in 8 cities, and by China Telecom and China Netcom in one city. Network construction has been completed recently except in Beijing, due to difficulty acquiring cell sites. China Mobile started the bidding process for 30,000 TD-SCDMA handset units and 10,000 data cards on 20 December 2007 and may have them ready for service trials by February 2008. It will be a challenge for China Mobile to provide commercial TD-SCDMA service during the Olympic Games in August, given the slow progress of tests and network construction.

The final outcome of industry restructuring remains uncertain, and industry contacts continue to report a range of possible scenarios. One new restructuring scenario reported in the industry since January 2008 is for China Tietong to merge with China Mobile, China Telecom to acquire China Unicom’s CDMA network, and China Netcom to merge with the rest of China Unicom. BDA believes this scenario is increasingly likely since it fulfills the government target of creating a balanced competitive structure in the telecoms market. The National People’s Congress (NPC) in March may announce the official decision to carry out industry restructuring, but the actual restructuring would be implemented later this year, after the Olympic Games are held.


Operators’ PHS Service Strategies

Telecom Carriers offer bundled package to sustain PHS subscribers

China Telecom launched ‘One Home - E6’ packages bundling fixed-line telephone and PHS services for household customers in Dec 2006, in order to retain PHS subscribers, especially the high end users. ‘ One Home – E8’ packages are provided as well, bundling fixed-line phone and broadband services. China Telecom’s target was to attract and keep the top 40% of household users with ‘One Home’, and it had achieved 11 million ‘One Home’ subscribers by the end of 2007.

In Suzhou, China Telecom attracted 30,000 ‘One Home – E6’ subscribers in February 2007. In Suzhou, 10% of ‘One Home’ package users opted for ‘E6’ which includes PHS. In Shaanxi, 16% of China Telecom’s 240,000 ‘One Home’ users signed up for ‘E6’ packages by July 2007.

Operators cut prices for PHS users, to fight back against mobile tariff reduction

In January 2008, China Telecom in Chengdu, Sichuan province offered a new tariff for PHS users. PHS subscribers pay only RMB 0.09 per minute for both local calls and domestic long distance calls without a minimum monthly fee. The regular price is RMB 0.1 per minute for local calls and RMB 0.7 per minute for domestic long distance calls with a monthly fee of RMB 20-25.

From 2007, mobile carriers started to offer Calling Party Pays (CPP) packages initially to higher end users and expanding gradually to middle and lower end users. The CPP packages were subscribed to by over 50% of mobile phone users in 2007. With CPP no longer available as a differentiator for PHS, operators hope their low price strategy will help to retain PHS subscribers and drive traffic growth.


PHS Value-Added Services

PHS internet service

China Telecom in Fujian launched “LingTong e-net” in September 2007 in the city of Quanzhou. With this internet service, PHS subscribers can access the internet with a laptop or PDA using a PHS data card. The data rate is up to 128 Kbps. Furthermore, China Telecom also launched PHS internet services in Shanghai and Nanjing, Jiangsu province, called “Ling Yi Tong” and “E Ling Tong”.

China Netcom also launched this service in Beijing called “e YouWuXian” in Sep 2007.



Given its guaranteed bandwidth, the PHS internet access service is more cost effective than the mobile carriers’ wireless internet access services (See Exhibit 2). It is also more attractive than the WiFi service given its much larger coverage.




PHS IM service

Following China Mobile and China Unicom, China Netcom launched its mobile IM service for PHS users named “CNC MAX IM” (Ling Xin) in April 2007. The PHS IM service can be installed in PHS handsets, PCs and other mobile terminals. Ling Xin users can send SMS to any users and pay the regular SMS fee at RMB 0.1 per item, but the service is free to PHS users during the trial stage.




China Telecom is also researching its own IM service. Carriers are targeting the development of the IM service as a service platform for both mobile and broadband in the future.


PHS search service

China Telecom launched “PHS search” in the fall of 2007 and has expanded it to 190 cities so far. The PHS search service can help users find ring tones, pictures and daily information through SMS. The database for PHS search includes 5.4 million pieces of information, covering food, entertainment, business and other general information. During the trial period, the PHS search service is free.

China Telecom agreed to cooperate exclusively with Easy Search, a local mobile search company, for the PHS search services in the next three years. China Telecom aims to offer the same service over 3G once it receives a license.


PHS wireless stock trading service

China Telecom in Shanghai provided a stock trading service to PHS users in July 2007. PHS users can get unlimited PHS Internet access for two years, a laptop, stock trading software and securities related information for RMB 10,500 - 25,000. China Telecom targeted the 77% of stock holders that prefer wireless stock trading. China Unicom and China Mobile have also offered similar mobile stock trading services and received wide acceptance in 2007, thanks to the booming stock market in China in the past two years.