Growth in city-based mobile-telephone services in China known as xiaolingtong is strong and looks set to remain so, according to a leading equipment vendor.
Nasdaq-listed UTStarcom, which supplies roughly 70 per cent of China's xiaolingtong network equipment and handsets, is confident users of the service will reach 25 million by the end of next year.
Ten million customers used xiaolingtong services in China in October, up from less than four million at the end of last year, according to UTStarcom president and vice-chairman Wu Ying.
He said subscribers would reach 12 million by the end of the year, citing a Merrill Lynch forecast. UTStarcom also estimated that about 20 per cent of China's new telephone users were xiaolingtong subscribers.
China Telecom, a key provider of xiaolingtong services, has played down growth prospects for the service. According to a Goldman Sachs research report, the mobile carrier has been low-key in order not to trigger concerns at China Mobile and China Unicom.
Mr Wu said he expected subscriber growth to accelerate, fuelled by the low cost of investing in xiaolingtong networks and inexpensive handsets.
Capital expenditure (capex) costs for building a xiaolingtong network were just 500 yuan (about HK$468) per line, compared with 1,500 yuan per line on a fixed-line network, Mr Wu said.
In addition, capex for xiaolingtong services could drop to below 400 yuan per line by the end of next year, while fixed-line capex had limited room to fall, he said.
What was more, he said, average revenue per user for xiaolingtong services was much higher, 'giving carriers an incentive to invest'. The services generate between 60 and 65 yuan monthly per user compared to between 30 and 40 yuan for fixed-line services.
Frequency was also no problem, Mr Wu said. The Ministry of Information Industry recently allocated an additional 20 megahertz frequency that could be used for xiaolingtong services.
UTStarcom is a key supplier of xiaolingtong network equipment and handsets to the China market and counts China Telecom and China Network Communications among its key clients.