- Key Trends in China’s PHS Market
- 3G
- Operator Strategies
- Value Added Services



Key Trends in China’s PHS Market

China’s PHS subscribers totalled 91.6 million by the end of May 2006 with subscriber growth rebounding in the month on seasonal factors as well as promotions by operators. Net additions reached 1.29 million in May, up substantially from April’s 0.83 million. April had the lowest number of new additions so far in 2006. (See Exhibit 1)




Jiangsu and Guangdong provinces remained the top two PHS markets in terms of total users, with 9.48 million and 9.36 million subscribers respectively at the end of April 2006.

Qinghai, Ningxia and Beijing were the top three provinces in terms of the growth rate in April 2006, at 4.53%, 4.52%, and 3.06% respectively. (See Exhibit 2)





3G

BDA believes China is likely to further delay 3G licensing until the end of 2006 or 1H 2007. Therefore, BDA expects PHS subscribers to continue growing as China Telecom and China Netcom need PHS to offset the impact of mobile-fixed substitution. The delay in 3G licensing is partly to allow more time for trials of the domestic 3G standard, TD-SCDMA. Large-scale pre-commercial trials are currently being held in Shanghai, Beijing, and three mid-sized Chinese cities, which will be carried out until August 2006. The government may issue a TD-SCDMA license first to give the home grown technology a head start.



Operators’ Strategies

China Telecom is expanding QBOX service to 24 cities from 6 cities

This June, China Telecom put in an order for 300,000 QBOX sets from UTStarcom to support services in 24 cities. China Telecom has already launched services in 6 cities - Shanghai, Xi’an, Wenzhou, Foshan, Zhangzhou and Huizhou - since 2005. Currently, there are about 300,000 QBOX users, according to UTStarcom. China Telecom Shanghai alone had reported over 100,000 users by January 2006.

China Telecom hopes to increase ARPU as well as retain both PSTN and PHS users with QBOX. QBOX includes one PSTN phone and one PHS handset, providing better PHS coverage at home and convenient mobile service outside the home using the PSTN number. QBOX thus enables fixed-mobile convergence (FMC) by allowing subscribers to use their iPAS devices as digital cordless phones. QBOX can also integrate a DSL modem or WiFi Access Point to allow for broadband access. QBOX is expected to increase ARPU by RMB 5-10 for fixed-line subscribers, according to UTStarcom and press reports.

China Netcom also trialed QBOX services in Beijing and Hohhot, but lags behind China Telecom in terms of its user base and city coverage.



Value Added Services

China Telecom Hangzhou launches PHS LBS service for primary and junior high school school students

China Telecom Hangzhou launched PHS LBS service for children and teenagers from late May.

China Telecom's new location-based search service allows users to identify a wireless subscriber's geographic location within about a 50-150 square meter area. Parents can access location information of their children by dialing a hotline, accessing a website or sending a SMS. In addition, the PHS handset will automatically send a SMS to parents if the user leaves a predefined area, such as a school, library, or travel route.

This type of PHS LBS service has been provided in a few cities since late 2005, including Guiyang in Guizhou province. According to industry interviews, the service attracted many parents and children due to PHS’s convenience, relatively low microwave radiation and low cost (RMB 300-400 for a PHS handset and RMB 10-15 per month tariff package).

China Telecom Chongqing tests PHS/GSM dual-mode handsets from June

China Telecom Chongqing is carrying out internal tests of a PHS/GSM dual-mode handset. The handset has two SIM card slots for PHS and GSM. PHS is the default mode for the handset, which switches to GSM if PHS coverage is weak. However, the local telecom regulator said the lack of a license would make it difficult for the handset to be launched in the market.

BDA has found that many branches of China Telecom have already used PHS/GSM dual-mode handsets internally or for trials on a limited basis, including in Guangdong. Users appear interested in the handset due to PHS service low cost and roaming services offered through GSM. However, regulatory restrictions on this type of handset may become a major obstacle for volume sales in China.