Lower mobile tariffs cut into growth of xiaolingtong in rural areas and third-tier cities
Although China Mobile controls a major share of the mainland mobile market, the company has been facing tough competition from fixed-line rivals' wireless local service called xiaolingtong, which emerged more than a decade ago.
Starting early in the decade, China Telecom and China Netcom aggressively promoted the mobile telephone-like service to compete with mobile players. The service, which is based on the fixed-line infrastructure, was treated as an extension of users' fixed-line service.
Xiaolingtong's edge was the cheaper tariff, especially when mobile tariffs were much higher than fixed-line rates four to five years ago. Fixed-line users living in rural areas or third-tier cities opted for the service, which grew robustly from 2002 and peaked in 2006 with 93 million subscribers. China Mobile had 433 million subscribers in the same year.
However, as mobile operators started to lower their tariffs by promoting the calling-party-pays pricing mechanism on a domestic level, it effectively lowered the entry barrier for rural users to switch service. Together with the availability of low-cost mobile telephones, mobile operators won back market share from xiaolingtong.
To some extent, xiaolingtong, officially an unlicensed product in the telecommunications market, underscored the extent of a regulatory loophole. Fixed-line operators provided the service as a value-added service to their core business. In order to differentiate itself from the traditional mobile service, xiaolingtong is only available for use within a province.
As authorities pushed to reduce mobile tariffs by cutting domestic roaming fees and implementation of the calling-party-pays pricing mechanism, more xiaolingtong users shifted to mobile services. This resulted in both China Telecom and Netcom recording a net loss in the number of fixed-line users from last year due to the massive migration.