- Key Trends in PHS
- 3G
- Operator Strategies
- Value Added Service



Key Trends in PHS



PHS subscriber growth fell slightly in May and June 2005, with new additions of 2.44 million and 2.05 million respectively. 　Newly-launched PIM-enabled PHS handsets appear to have had only a limited impact on driving subscriber uptake.

However, overall PHS growth remained strong in the first half year, with subscribers increasing by 14.5 million to 80 million. Average monthly additions during the period amounted to 2.42 million, slightly lower than the 2.92 million in the year-earlier period, but much higher than the 1.60 million in 2H 2004.


China Telecom vs. China Netcom market share



Market shares of the two operators remained stable from March to June. China Netcom had a market share of 34.3% and China Telecom had a 65.7% share. BDA believes their market shares will stay near these levels in the short term.



3G

BDA maintains its view that 3G licenses will be issued in 2006 as industry restructuring is not expected to be completed until late-2005 at the earliest.

China’s State-owned Assets Supervision and Administration Commission (SASAC) is expected to finalize its telecom restructuring plan and submit it to the State Council for approval in October. Between April and June this year, the Ministry of Information Industry (MII) and National Development and Reform Commission (NDRC) submitted several restructuring proposals to SASAC which is to finalize its plan in time for October.

Restructuring will most likely focus on China Unicom and China Netcom, while China Mobile and China Telecom should remain intact. Restructuring is aimed at creating more competitive operators, with stronger business structures and higher quality assets. In this regard, China Mobile and China Telecom are believed to be already qualified. At the same time, regulators hope to resolve China Unicom’s difficulties of operating two competing mobile networks, while simplifying China Netcom’s complex corporate structure and offloading its heavy debts.



Operators' Strategies

China Telecom may further reduce PHS investment in 2H 2005

China Telecom previously said it would invest RMB 8.3 billion on PHS in 2005. However, the operator may spend much less than planned capex of RMB 5-6 billion in 2H, due to the wide belief that it will receive a 2G mobile network after the expected break-up of China Unicom. Based on contract figures, China Telecom may have spent RMB 2-3 billion on PHS equipment in 1H.

BDA believes that China Netcom also remains cautious about PHS, but is unlikely to reduce investments significantly. China Netcom originally planned to invest RMB 3-4 billion on PHS in 2005, of which BDA estimates RMB 2-3 billion will be spent in 2H 2005.

PIM card enabled handsets attract users

PIM card enabled handsets accounted for about 30% of total PHS handset sales in Beijing in May and steady growth is expected in coming months. According to BDA’s interviews, about 4,000 of the 14,000 new PHS subscribers in May were using PIM card enabled handsets.

More than 20 models of PIM card enabled handsets are available in the market. Most are in the mid to high-end price range, costing between RMB 500 and RMB 1,000 each, RMB 70-80 more expensive than traditional handsets.

Operators are offering very few promotions for PIM card handsets. China Telecom and China Netcom have both announced plans to reduce PHS handset subsidies this year.

China Netcom and China Telecom branches are launching/trialing PHS home box

Between April and August this year, China Telecom launched PHS home box services under the "Fixed-line PHS (固话小灵通)" brand in Shanghai, Xi’an, Wenzhou, Huizhou, Foshan and Zhangzhou. Wuhan is also reportedly planning to launch commercial home box services soon. China Netcom has introduced home box services in Hohhot and is carrying out trials in Beijing.

3 types of home boxes are currently available – basic, ADSL (built-in ADSL modem), and ADSL+WLAN (built-in ADSL modem and WLAN AP). The price for one home box and one handset is between RMB 1,000 and RMB 1,500. To drive uptake, both China Telecom and China Netcom offer subsidies of RMB 400 to RMB 800.



Value-Added Service

China Telecom launches news SMS services in cooperation with Xinhua in Qinghai

The new service, named "Xinhua SMS," provides PHS users in Qinghai Province with news alerts delivered by SMS. The service costs RMB 5 per month, which includes 5-8 messages. The operator is currently offering potential users a free 10-day trial.

China Telecom tightens SP management for PHS Value Added Services

Similar to the mobile market, China Telecom is also strictly supervising its PHS SP partners to ensure good quality services for its users. In late-July, China Telecom punished 6 nationwide PHS SPs for fraudulent billing practices and unauthorized SMS distribution by handing out service suspensions and fines. China Telecom branches in Hubei and Guizhou have also meted out punishments to local SP partners that violated rules this year.