China Telecom, the country's largest fixed-line carrier, has moved to directly compete with the mobile phone duopoly by launching its discount hand telephone service in Chongqing.
In launching the city-specific Xiaolingtong mobile service a week after offering a call-forwarding service that takes traffic from mobile operators, China Telecom has escalated a competitive war.
China Telecom began offering its mobile service in all areas of Chongqing municipality - technically China's largest city - on Wednesday, according to the company's local operator.
Growth-challenged China Telecom's move into the mobile phone operators' urban heartland demonstrates the fixed-line giant's need to seek new revenue sources following the delay by Beijing of the allocation of third-generation mobile phone services.
The launch of China Telecom's call-diverting service in Guangzhou, Shenzhen and Dongguan allows mobile customers to forward calls to fixed-line phones, prompting howls of protest from rival mobile phone companies, which claim they will lose revenue from this competition.
The service has proved a hit with Guangzhou consumers, who last week were seen queuing at the Guangdong Tianhe store before 8.30am to subscribe.
In a cross-selling effort, Guangdong users who spend between 500 yuan (about HK$468) and 3,000 yuan to buy Xiaolingtong handsets can receive the service for free on a limited period until the end of this month.
Xiaolingtong or 'Little Smart' is an alternative mobile service known as a 'wireless local loop' offering limited mobility within a local area.
Tariffs are equivalent to those of regular fixed-line services and substantially lower than those offered by mobile operators.
'The Xiaolingtong service is exactly the same as a fixed-line phone, except that it is mobile,' China Telecom's local operator told the South China Morning Post.
The Ministry of Information Industry considers it as an extension of fixed-line services but China United Telecommunications Corp, the country's No 2 mobile phone carrier, has often complained the service is a cellular service.
China United has also urged the telecoms regular to regulate this mobile phone service.
China Telecom's move to extend the service to Chongqing is considered significant as the city is one of China's four directly administered urban hubs, according to ABN Amro telecoms analysts Helen Zhu and Joe Locke.
The move promises to test regulatory limits since the Ministry of Information Industry has prohibited Xiaolingtong being launched in major cities.
However, the China Telecom local operator said: 'Chongqing is considered to be very slow in offering Xiaolingtong.
'We have launched the service in more than 300 cities.'
Analysts estimate that China Telecom has about 12 million Xiaolingtong users, which is expected to double by the end of this year.
China Telecom's move to mobile services came a month after outgoing ministry chief, Wu Jichuan, said there was no immediate proposal in place to offer new mobile licences.
Both the fixed-line carriers - China Telecom and China Network Corp - expect official approval to offer full mobile services when third-generation (3G) licences are eventually issued by the central government.
The implementation process has been complicated by Beijing's decision to support a home-grown version of 3G, which will not be ready for launch until next year at the earliest.
Delaying their issuance leaves fixed-line carriers at a disadvantage in competing with the big two mobile phone carriers and increases the incentive for them to seek alternative revenue sources such as Xiaolingtong's, according to analysts.