Fixed-line operators stand to lose from roaming cuts

PUBLISHED : Monday, 18 February, 2008, 12:00am
UPDATED : Monday, 18 February, 2008, 12:00am

Mainland fixed-line phone companies could see their revenues eroded this year as a result of the government's decision to cut roaming fees charged by mobile operators, industry watchers warn.

The National Development and Reform Commission and the Ministry of Information Industry last week announced that from March 1 the roaming charge levied when mobile-phone users made calls outside their local service area would be cut to 60 fen per minute, and to 40 fen a minute when receiving calls outside their service areas.

That compares with current charges of between 1.30 yuan and 1.50 yuan per minute for roaming services depending on whether users are on a prepaid or monthly subscription. According to industry watchers, this will mean an estimated 539 million mobile subscribers will enjoy price cuts ranging from 54 per cent to 73 per cent from next month.

Mobile users will also no longer need to pay a domestic long-distance tariff on top of the roaming charges, according to last week's announcement, which could lead to further savings on mobile usage charges of about 40 to 60 fen per minute.

The waiving of the long-distance charge and the reduction in roaming charges will further hit the operations of fixed-line business operated by China Telecom and China Netcom Group Corp. Researchers at Merrill Lynch said that in light of the changes, they were reviewing subscriber forecasts for fixed-line players.

'We may further reduce access line forecasts at the two fixed-line operators,' Cynthia Meng, an analyst at Merrill Lynch, wrote in a research note.

Results announcements from both fixed-line operators for the six months to June last year indicated that long-distance calls generated 14 per cent and 11 per cent of their total revenues, respectively. China Telecom booked domestic long-distance revenue of 12.1 billion yuan and China Netcom gained revenue of 4.4 billion yuan in the same period.

The fixed-line providers are meanwhile wrestling with declining subscriptions as customers switch to more popular mobile services. In December last year, China Netcom and China Telecom reported declines in the number of land-line subscribers by 2.53 million and 1.48 million, respectively, while China Mobile reported big gains in its customer base.

Analysts also said the cuts in roaming charges would not have a big impact on mobile operators' revenues, since some had already launched roaming packages for high-spending users that offered flat rates for both domestic roaming charges and local calls.

For example, China Mobile postpaid users can sign up for a 20 yuan per month value-added service offering a flat rate of 32 fen per minute on local and domestic roaming calls. China Unicom also offers a similar package.

'We think many subscribers with heavy roaming usage would have chosen to enjoy those preferential tariffs already,' JP Morgan analysts said in a research note, adding that China Mobile in Sichuan and Henan offered some prepaid users a 20 fen per minute charge.

JP Morgan estimates the new roaming charges may lead to a low single-digit revenue fall.

The new domestic roaming charge will also encourage users to spend more while they are travelling. Industry watchers said some mobile users would prefer to save by buying a local prepaid card when travelling.