China's mobile operators are facing further pressure on tariffs as their fixed-line counterparts scramble for wireless business due to the expected delay in receiving mobile licences.
The fixed-line giants - China Telecom and China Netcom - are substantially increasing their investment in xiaolingtong networks in major cities.
Xiaolingtong is a city-wide cellular service offering limited mobility and fewer features than a full mobile service, but at a quarter of what mobile operators China Mobile and China Unicom charge.
Nasdaq-listed telecom equipment supplier UTStarcom has signed contracts worth US$261 million with the fixed-line carriers this month to deploy xiaolingtong networks, according to a Goldman Sachs research report issued yesterday.
This includes contracts worth US$114 million with China Network to set up xiaolingtong networks in Hebei, Shangdong and Liaoning provinces.
'Contracts [UTStarcom] announced in the first 10 days of January already amount to 31 per cent of the total contracts awarded in 2002,' Goldman Sachs said.
Analysts said the Ministry of Information Industry's (MII) delay in issuing third-generation (3G) licences gave the fixed-line giants an incentive to expand their xiaolingtong networks.
The government has said the fixed-line carriers will not receive mobile licences until the 3G licences are issued. The MII said this weekend reports that they would be issued this year were 'inaccurate'.
The fixed-line carriers are reportedly planning to expand xiaolingtong services to 90 per cent of the country's major provincial capitals.
Xiaolingtong services currently cover more than 300 cities, or about 70 per cent of the provincial capitals.
'China Mobile and China Unicom will likely face a more competitive market landscape, where tariffs are also under downward pressure,' China International Capital Corporation said in a recent report.
DBS Vickers Securities analyst Wallace Cheung said he had factored in a 30 per cent and 50 per cent discount to the official mobile tariffs of China Mobile and China Unicom, to reflect intensifying price pressure from the fixed-line carriers as well as between the mobile operators.