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



Key Trends in PHS



PHS users grew at a much slower pace in August with just 1.02 million new subscribers. However, growth rebounded in September with 1.53 million net additions. The slowdown in August was mainly due to seasonal factors.

As shown in the exhibit above, overall monthly subscriber additions this year have declined significantly compared with 2004, which can be largely attributed to PHS operators' reduced spending on promotions and network upgrades. BDA expects PHS growth will remain stable at around 1-1.5 million users per month in the near future. The total PHS subscriber base is expected to reach 100 million in 2006, driven by the launch of home boxes by PHS operators.


China Telecom vs. China Netcom market share



Market shares of China's two fixed-line operators have remained stable at around 66% for China Telecom and 34% for China Netcom over the last 3 quarters.



3G

BDA believes 3G licenses will be issued after March 2006, when it will be discussed together with the 11th 5-year Plan (2006-2010) at the annual National People's Congress.

The immaturity of TD-SCDMA and industry restructuring are two primary issues delaying the issuance of 3G licenses. In December, a large-scale TD-SCDMA commercial trial, with hundreds of base stations and capacity of over 200,000 users is scheduled to be carried out in Beijing, Shanghai or other key cities. In terms of restructuring, China Telecom is now believed to be the most likely to obtain a TD-SCDMA license and should launch 3G services earlier than other operators after it acquires China Unicom's GSM network.




Operators'Strategies

China Telecom to increase PHS investment by 5% in 2H

China Telecom said in August that it will invest 5% more than its planned budget on PHS to maintain growth. In the past 3 quarters, China Telecom acquired 13 million new PHS subscribers, accounting for 65% of total new fixed-line users

BDA believes China Netcom has continued to invest in expanding PHS coverage in 2H. For example, in Beijing, China Netcom has been carrying out Phase III network construction since August to improve coverage in subways, overpasses and highways with 2,865 new base stations.

PIM card enabled PHS handsets become mainstream

PIM card enabled handsets have become mainstream in China's PHS market. According to the China Fixed Network and Wireless Terminal Alliance (CFWTA), sales of non-PIM card handsets were halted in October. However, non-PIM card handsets may still be available in some local markets.

Telecom operators, meanwhile, have launched campaigns to offer free or cheap PIM card handsets to push existing users to replace their handsets. For example, China Telecom Shanghai is offering several free PIM-enabled handset models to existing subscribers that have spent more than RMB 1,000 (USD 123) on PHS services.

China Netcom, China Telecom conduct nationwide PHS home box promotions

Since May 2005, both China Telecom and China Netcom have started to trial PHS Home Box services in some cities, including Shanghai, Xi'an, Wenzhou, Huizhou, Foshan, Zhangzhou, Hohhot and Beijing, using UTStarcom's Qbox product. China Telecom reportedly has about 20,000 home box users to date.

Meanwhile, the China Fixed Network and Wireless Terminal Alliance (CFWTA) headed by China Telecom and China Netcom is currently working to establish standards for home boxes and encouraging participation by more vendors in addition to UTStarcom. With standards likely to be set by the end of this year, operators and vendors should begin rolling out large scale home box promotions in 2006.


Cost is still the major obstacle for home boxes. The price for one Qbox and one handset is currently between RMB 1,000 and RMB 1,500. In order to attract users, China Telecom and China Netcom will need to subsidize home boxes, which may be a heavy financial burden. Once standardization issues are settled, though, costs are expected to fall and more vendors are expected to enter the market.


Value Added Service

China Telecom and China Netcom see strong PHS VAS take-up

SMS and Color Ring Back Tone services are the two most popular VAS among PHS users.

In the first 3 quarters of this year, China Telecom said 11.9 billion SMS were sent over its PHS network, a dramatic jump compared with 2004. (China Telecom did not release detailed figures for PHS SMS in 2004). CRBT services are also quickly gaining ground, with 13 million users in the January-to-September period, or about 23.5% of China Telecom's total PHS subscribers.

China Netcom is also seeing similar strong growth in PHS VAS. According to China Netcom (HK), PHS SMS increased to 2 billion in 1H 2005 from 1.3 billion for the whole of 2004. Its CRBT users also increased to 2.7 million in 1H 2005, accounting for 14.9% of its total 18.1 million PHS users.




China Telecom continues to tighten SP management for PHS VAS


In early November, China Telecom punished 19 PHS VAS providers (SPs), including Sohu, for overcharging users and sending mass SMS without obtaining permission from users. Punishments range from fines to service suspension. According to the Beijing Times, Sohu reportedly received the smallest fine of RMB 220,000 (USD 30,000), while Beijing Entel received the largest fine of RMB 3.18 million (USD 0.39 million).

The stricter punishments follow recent regulatory policies aimed at restricting illegal SMS and mobile data services. According to the new regulations, Chinese telecom operators are held responsible for complaints filed by subscribers about SMS services.