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

Key Trends in PHS

China's PHS subscribers totalled 93.4 million by the end of October. Net additions totalled 0.09 million in October, down from 0.39 million in September. (See Exhibit 1)

Exhibit 1: PHS Subscriber Statistics

Source: Ministry of Information Industry (MII)


Guangdong and Jiangsu provinces remained the top two PHS markets in terms of total users, with 10.28 million and 9.94 million subscribers respectively by the end of October.

Hainan, Ningxia and Qinghai were the top three markets in terms of the growth rate in October, at 3.43%, 3.11%, and 2.89% respectively. (See Exhibit 2)

Exhibit 2: PHS Subscriber Statistics by Province (as of October 2006)

Source: Ministry of Information Industry (MII)

3G

BDA believes China is likely to further delay 3G licensing until 1H 2007. BDA expects PHS subscribers to continue to grow, as China Telecom and China Netcom rely on PHS to offset the impact of mobile-fixed substitution. The delay in 3G licensing is partly intended to provide more time to trial TD-SCDMA, China's domestic 3G standard. Promoted by the government, TD-SCDMA trials will expand to 4 new cities, including Shenyang, Qinhuangdao, Tianjin and Hong Kong for the 2008 Olympic Games. The Chinese government is likely to initially issue only a TD-SCDMA license to give the home grown technology a head start.

Operator's Strategies

China Netcom promotes PHS with aggressive price cuts in Beijing

To attract new business, China Netcom subsidiary Beijing Netcom has launched its new PHS monthly package, 'Yang Guang Xin Ruif, offering no monthly base fees exclusively for Beijing university students. Currently, there are 12 universities operating under this scheme, while other universities are in the process of joining the network.

The minimum charge for the 'Yang Guang Xin Rui' package is RMB 18 (USD 2.25) per month, including RMB 6 (USD 0.75) for text messages (SMS) and RMB 12 (USD 1.50) in standard fees. The RMB 28 to RMB 88 (USD 3.5-USD 11) base fee is only waived for university students in Beijing. With this new package, PHS subscribers who call from university network union areas pay RMB 0.15 (USD 0.0185) per minute for each local call, RMB 0.06 (USD 0.0075) per SMS, and RMB 0.25 (USD 0.031) per minute for a domestic long-distance call.

For phone calls made away from the network union area, including in Beijing suburbs, subscribers are charged RMB 0.25 (USD 0.031) per minute for a local phone call, RMB 0.30 (USD 0.0375) per minute for a domestic long-distance call, and the same rate of RMB 0.06 for each SMS.

E-Box service becomes popular among enterprises

According to UTStarcomfs report, the coal mining industry is presently the largest market for E-Box, due to the low cost and high quality of PHS signal transmission inside mining tunnels. Hospitals are also a big potential market for E-Box, since PHS interferes less with medical appliances, emitting lower amounts of radiation than other wireless communication technologies.

Exhibit 3: E-Box Market Breakdown by Industry

Source: UTStarcom

Value-Added Services

PHS SMS Continues Strong Growth in 1H 2006

According to interim reports from the two PHS carriers, SMS remains the key VAS for PHS, reporting strong revenue and volume growth in 1H 2006. China Telecom reported 47% YoY growth in PHS SMS revenue while China Netcom saw a 43% rise in PHS SMS volume.

Exhibit 4: Carriers' PHS SMS Growth in 1H 2006

Source: company information

Shanghai Telecom Offers Loctaion Services to The Elderly

Shanghai Telecom is partnering with the Shanghai Gerontology Association (SGA) to promote a new PHS service embedded with positioning functions. Potential customers include Shanghai citizens over the age of 50.

Qualified PHS subscribers who pay a monthly fee of RMB 20 (USD 2.5) under a two-year contract will receive the positioning function free of charge. Through special settings in the PHS handset, users can use SMS to obtain information about their location. In addition, family members can also check usersf whereabouts by entering and sending "DW#" plus the handset ownersf phone number to 1116, or through the website http//lcs.shphs.com.

The new handsets are password-activated for security purposes, and the degree of accuracy is between 50 to 100 meters. At present, there are only 10,000 PHS handsets with positioning functions available, but Shanghai Telecom plans to increase supply based on market demand.