Mr. Nakanishi

     gTechnology Innovatorh, gGlobal Presenceh and hStrong Financial Performanceh are the three elements of the business strategies on which UTStarcom is focusing. With these, we are aiming at long-term growth and sustainability of our business.

     There are 25 million Chinese PHS subscribers at present and the number is expected to increase to 30 million by the end of this year and 50 million by the end of 2004.

     Chinese telecommunications users can generally be divided into three groups. The wealthiest group is composed of 3G and mobile phone users and accounts for 20% of the total population. Tlowest income group of users canft afford to buy a telephone at all and accounts for 30% of the total population. The target market of the UTStarcomfs PHS system, PAS, is the middle income group of users who account for 50% of the total population. PHS has spread rapidly in China because it is aimed at this middle income group users;it enjoys the advantage of low cost operation, rapid deployment, and revenue generation for the service provider and cost-effectiveness for end users.

     Currently 90% of all PAS traffic is voice; data accounts for only 10%. The voice traffic, however, is shifting to data as social economic standards and technological proficiency improves. We will promote this shift towards data communications in China as well as in Japan where data communications is already mainstream.

     UTStarcom has been providing PAS gC-modeh service (similar to NTT DoCoMofs gi-modeh service)from 2002 and its equipment now supports 1 million subscribers. Ten percent of the PAS users subscribed to gC-modeh service as of April, 2003. PAS gSMS (Short Messaging Service)h, was launched in 2002 and more than 3.5 million users are enjoying this service as of April, 2003.

     Roaming service is not allowed in China, so as an alternative UTStarcom has established PAS Data Value Added Service (VAS)centers in each province. Standardization of this service, however, may be difficult because operations differ province-by-province and we will deploy enhanced VASs from now on.

     The next issue is the situation of Taiwan. The number of Taiwanese PHS subscribers has reached 700,000 as of September, 2003. Thanks to its inherent high speed data service low cost concept, PHS is keeping a firm position in the telecommunications market and there will still be room for future growth even with 100% GSMfs penetration. Data services currently account for approximately 15% of PHS traffic and further growth is expected. The most popular applications are browsing, online chat, games, pictures download, and ring tone download.

     Furthermore, WiWi (Wireless Internet Wireless Information) service which enables a PC or PDA for wireless data communications by inserting a card-type PHS terminal into a slot or by cable connection with the PHS terminal is also popular in the business market.

     In markets outside of China and Taiwan, we are targeting WAP, supporting a compatibility with other systems, and Java technology development for data service applications in order to further spread the PAS system. We are hoping that UTStarcom will continue contributing to the future development of PHS and to open up its new markets as well.

[Click the image to enlarge]

[Click the image to enlarge]