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Xiaolingtong poised to step up mobile war
Latest Updated by 2003-05-23 08:50:03

Reeling from Xiaolingtong's technical flaws, equipment manufacturers and China's fixed-line carriers are ratcheting up their research and development (R&D) to try to narrow the gap with virtual wireless services.

Shenzhen-based ZTE, a major supplier of Xiaolingtong equipment, has developed a new technology that will allow Xiaolingtong subscribers to access the Internet.

The new offering, branded as "Lingtong Shikong," enables Xiaolingtong users to browse any website with their hand-held terminals.

Subscribers can also send and receive Web-based e-mail, the company said.

So far Xiaolingtong users have not been able to access the Internet without a link between their terminals and computers.

The company expects the new service will gain broad support from Internet content providers, as they only have to make minor adjustments to their Web pages to activate the service.

ZTE is touting the service as a 2.5G technology, comparable with China Mobile's GPRS (general packet radio service).

GPRS subscribers are often frustrated with the limited availability of websites and e-mail accounts, as content providers must significantly redesign their Web pages to adapt to the GPRS service.

ZTE will soon implement the new service, a company spokesperson said.

"The new service will become a new business growth area for Xiaolingtong operators, and will help them recruit subscribers," she said.

Technical improvements would help fixed-line operators set their sights on the wireless data business.

Although Xiaolingtong is helping China Telecom and Netcom seize increasing voice-service revenues from their cellular rivals, it remains an underdog in the data service market.

Xiaolingtong is built into a city's fixed-line phone network through PHS (personal handy-phone system), which enables roaming only within the city.

As Xiaolingtong has limited roaming and generally cannot be upgraded to next-generation wireless telecommunications, it is considered a backward technology.

Xiaolingtong's roll-out was once limited by regulators.

However, fixed-line operators China Telecom and Netcom have taken advantage of Xiaolingtong's low-fees and regulatory flaws. They have helped transform it from a regulatory grey area to a nationwide service.

Xiaolingtong offers lower per-minute call rates than China Mobile and China Unicom's mobile phone services, and only the caller is charged. China Mobile and Unicom, meanwhile, charge both the caller and recipient.

Despite its success in the voice communications market, Xiaolingtong remains almost unknown in the data business, due to a lack of a "killer application."

Manufacturers have zealously added new functions - such as messaging, ringtone downloads, pictures, mp3 and colour screens - to Xiaolingtong to make it more attractive to consumers.

China Telecom is building out a "special zone" in the Pearl River Delta, in South China's Guangdong Province, to link Xiaolingtong networks in major cities - including Guangzhou, Shenzhen, Zhuhai, Huizhou, Foshan and Dongguan, industry sources said.

With the technological breakthrough, expected within weeks, Xiaolingtong subscribers will be able to roam and send and receive short messages within those cities, sources predicted.

Although a national network remains unlikely due to technological barriers, the network coverage mode might be copied in other regions.

Linking is part of China Telecom's efforts to boost transmission power for the Xiaolingtong service in the face of mobile operator marketing campaigns seeking to exploit coverage and service quality weaknesses.

Xiaolingtong has already been a surprisingly big success in China.

The number of Xiaolingtong users in China has reached 15 million, and the current network capacity has reached 38 million, ZTE said.

Xiaolingtong, though targetting the low-end market, represents a market size twice that of Unicom's CDMA (code division multiple access) business.

China Telecom and Netcom are still aggressively expanding their capacity.

"China Telecom (and Netcom) will continue investing in Xiaolingtong, as it does not have to build a transmission network," said Lu Tingjie, a professor with Beijing University of Posts and Telecommunications.

"Besides, under the current regulatory environment, a lack of licences for mobile businesses and the low profitability of the fixed-line networks have made Xiaolingtong a new business growth area for China Telecom and Netcom."

Xiaolingtong's profit margins are higher than those of wireline services. Xiaolingtong's average revenue per user (ARPU), an industry indicator, is higher than those of traditional fixed-line users, analysts noted.

Netcom plans to launch the service in central Beijing - the last city off limits - this weekend.

Xiaolingtong's rip-roaring growth, since it was first introduced in China, has caused conflicts within the industry, and resulted in aggressive phone rate cuts.

"Wherever Xiaolingtong is launched, mobile phone tariffs drop significantly," said Zhu Min, an analyst with telecoms consulting firm Analysys Consulting.

China Mobile last month introduced major discount plans in Beijing, Shanghai and Guangzhou, the country's three most-affluent cities, in a bid to counter competition from Xiaolingtong.

China Unicom has matched such discounts in Guangzhou.

An industry source told China Business Weekly that Unicom is considering following China Mobile's decision to launch on May 17 more aggressive discount packages in Shanghai.

That could ignite a new wave of brutal price wars in the mobile telecoms market, and shake the current State-set mobile billing system.

Now, with Internet access, larger network interconnection and further technical enhancements, Xiaolingtong will prompt fixed-line carriers to take aim at the data business, a new, booming segment in the highly competitive mobile telecoms market.

Xiaolingtong terminals promise reliable data speeds between 32 kbps and 64 kbps.

Carriers and equipment suppliers have begun marketing applications exploiting Xiaolingtong's data capabilities.

Due to its run-away success, Xiaolingtong has become an important revenue source for ZTE and US-based UTStarcom, the largest supplier for Xiaolingtong.

Numerous other manufacturers have long stayed on the sidelines out of fear Chinese regulators would clampdown on Xiaolingtong.

As the Ministry of Information Industry (MII) has lifted the ban and said it would neither reject nor encourage roll-outs of Xiaolingtong, more manufacturers are expected to jump into the fray.

On the waiting list are TCL, telecoms equipment maker Jinpeng and TV manufacturer Skyworth.

Currently, Xiaolingtong suppliers include UTStarcom, Sanyo, Kyocera, Fujitsu and ZTE.

Amoisonic has also entered the market for Xiaolingtong terminals.

With increasing industry support, a slew of technical enhancements of Xiaolingtong in the coming months are predictable, which will help Xiaolingtong, to some extent, shed its status as a backward technology and recruit more subscribers, analysts said.

Still short-lived

Despite rip-roaring subscriber growth, surging enthusiasm from operators and manufacturers and the increasingly diverse features, Xiaolingtong will still be a short-lived fad, experts predict.

"If MII relaxes its grip on the mobile billing system, gives full play to operators to either scrap the two-way charging system or drop the tariffs as low as Xiaolingtong, Xiaolingtong will definitely be dead," Lu said.

Analysys Consulting, in a recent research paper, predicted Xiaolingtong will see a boom late this year and early next year, but then its market will begin to shrink.

"With the issuance of the new mobile licences, fixed-line carriers' focus of investment will be shifted to 3G (third-generation) networks," it said.

"Besides, a large portion of Xiaolingtong equipment in the initial phase of network expansion cannot be smoothly upgraded to 3G. Even if it's feasible, the costs of upgrading will be very high."

The research paper also noted Xiaolingtong's development will be handicapped, as its network coverage will remain poor compared with those of cellular operators. Also, the paper added, Xiaolingtong's data service is less competitive.

Most Xiaolingtong users are from the low-end market, and they have little demand for data service.

However, Xiaolingtong's data offering is expected to be enticing, especially if it is low-priced and easy-to-use.


Editor: James

By: Source:China Daily
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