Key Trends in China's PHS Market


3G

3G licenses may be issued in 2009 when TD-SCDMA matures sufficiently for commercial service and the telecom restructuring has been completed.

Chinese telecom carriers have recently started re-assigning senior managers. A decision regarding restructuring may have been made during the March 2008 National People's Congress (NPC), but action is unlikely until after the Olympics. The old MII (Ministry of Information Industry) merged with three other ministries and administrations in March. The new MII (Ministry of Industry & Informatization) will need a few months to reorganize before it can fulfill its function of approving the restructuring.

China Mobile began offering ‘ShareFun', a commercial TD-SCDMA service, at selected outlets in 8 cities in April. Only 15,000 SIM cards will be offered in Beijing for commercial service. TD-SCDMA has lower voice and data prices than the GSM service, as shown in Exhibit 1-3. ShareFun users can enjoy 50% voice fee discounts during the first few months' trials. Its data charges are also much lower than that of GPRS, which charges RMB 200 for 800MB traffic.

Video phone calls are the most attractive service, charged at RMB 0.6 per minute. However users found quality poor, with some time-delays and picture freezing. Other services including MMS and SMS are ready.

There are six TD-SCDMA handset models and two data cards available for ShareFun users. Handsets prices range from RMB 3,800 to 1,800, which is higher than GSM handsets which have an ASP is about RMB 1,100. China Mobile subsidizes the price of each handset by RMB 88 to 199.

Only a limited number of outlets have started to sell the SIM cards and handsets. In total there will be 60,000 TD-SCDMA handsets and 15,000 data cards available for the commercial trials.

Exhibit 2, ShareFun - Alternative Voice Tariff

Monthly Fee(RMB) Local Outgoing Calls (incl. Video Calls) New Services Extra Calls 28 150 min Caller ID, Olympic i-News, 10MB T-net data traffic   RMB 0.2 per min 58 350 min CRBT 88 600 min

Exhibit 3, ShareFun - Data Tariff

Monthly Fee(RMB) Tariff Included Extra Traffic 100 2GB RMB 0.1 per KB 200 5GB

Source:China Mobile

Operators' PHS Service Strategies

Telecom Carriers offer bundled PHS services to maintain PHS users

In 2007 China Netcom continued to promote its bundled package service ‘Family 1+', aiming to retain PHS and PSTN users, as well as attract broadband users. By year end 2007, China Netcom attracted some 8.4 million ‘Family 1+' subscribers, up from 1.1 million a year ago, accounting for 10% of total fixed-line subscribers.

There are three major packages available under ‘Family 1+', as shown in Exhibit 4. Two of them bundle PHS service with either a fixed-line phone only or both a fixed-line phone and broadband connection. In all 3.9 million users have subscribed to the packages, accounting for 15% of total PHS users.

Exhibit 4, Family 1+ Subscribers Breakdown in 2007

Source: China Netcom

From 2008, China Netcom will include more applications and integrated devices like Home Box in the packages to retain and attract household users. China Netcom aims to connect PC, TV, and fixed-line phones to the ‘Home Box', to provide voice, video payment, intelligent appliances, games, and family entertainment services.

China Telecom also offers ‘One Home' branded bundled packages for its fixed-line, PHS and broadband users. By 2007, there were 25.7 million PHS users subscribing to ‘One Home' bundled packages, out of the total of 58.0 million PHS users.

In the future, China Telecom will encourage the top one third of its high end PHS users to move to its mobile network, which will be acquired in the near future from China Unicom. And China Telecom hopes to encourage many of the remaining subscribers to take up bundled packages.

China Netcom offers a free provincial roaming service for PHS users in Shandong province

China Netcom provides a ‘Ling Tong Shang Wu Ka', or ‘PHS Business Card' to PHS users in Shandong province. Users of the service can enjoy free roaming services in the province's 17 cities and districts. Having exchanged the old PHS card for this new Business Card at China Netcom's outlets, users retain their existing numbers but receive a new local number automatically when they visit other cities. The provincial roaming service is free to PHS Business Card users, so they pay only the local call fee (RMB 0.1 per minute) for outgoing calls in the cities they visit and do not have to pay for incoming calls.

China Netcom started offering the PHS Business Card service to post-paid users in April 2007 and to prepaid PHS users this March. The service will be very attractive to PHS users as China Mobile and China Unicom started to reduce roaming fees by RMB 0.2 per minute on April 1, 2008. Mobile users still need to pay RMB 0.6 per minute for outgoing roaming calls and RMB 0.4 per minute for incoming roaming calls.


PHS Value-Added Services

PHS interconnection SMS process simplified from March 2008

From March 26, 2008, mobile users (of both China Mobile and China Unicom) can send SMS to PHS numbers directly (including the zone code), rather than having to use the ‘106' prefix. This move will make it easier for mobile users to send messages to PHS users and boost PHS SMS usage.

China Netcom offers Location Based Service for PHS users in Shandong

China Netcom provides Location Based Service (LBS) for PHS users in Jinan, Weifang and Qingdao and will expand it to other cities in Shandong province in 2008. PHS LBS enables users to find out the whereabouts of children and elderly people who are carrying a PHS handset. This information can be accessed through a hotline, SMS or website. The PHS LBS service can locate people to within 50-100 meters.

So far this service has attracted over 30,000 PHS LBS subscribers in the three cities.

China Netcom launches ‘PHS Knows' search service

Recently the largest Chinese search engine Baidu and China Netcom launched the ‘PHS Knows‘ SMS search service, which integrates ‘Baidu Knows‘ online Q&A service and China Netcom's classified information database. PHS users can ask questions and receive answers by sending an SMS to 106569114. In addition, PHS users can also access the database by calling 114 or visiting China Netcom's websites.

The service covers food, hotel, transportation, weather and entertainment information. ‘Baidu Knows' has amassed over 20 million pieces of information, which will be available for PHS users. Questions from PHS users can also be answered by internet users on Baidu's website if more information is available.

China Netcom has built the search platform and database and installed the ‘PHS Knows' search service into 200,000 PHS handsets for commercial service.