The intense competition seen in China's GSM (global system for mobile communications) and CDMA (code division multiple access) mobile handset markets has not been witnessed, until recently, in the burgeoning market for personal handyphone systems (PHS).
With an estimated 16 million users, the xiaolingtong (known in English as 'little smart') fixed-wireless services offered by China Telecom and China Netcom represent a market already twice the size of China Unicom's CDMA service.
Xiaolingtong has been operating in a regulatory 'grey area', without a formal licence or government endorsement. While interested in the technology's rapid uptake, a number of handset manufacturers have stayed on the sidelines for fear that a regulatory clampdown will lead the service down a dead-end street.
But a growing number of equipment vendors are looking to jump into the fray after the former Minister of Information Industry, Wu Jichuan, said in February the ministry (MII) would adopt a hands-off stance on the technology.
The market for PHS handsets is dominated by the technology's leading infrastructure vendors. These include UT Starcom - supplied by Sanyo, Kyocera and Fujitsu - and Shenzhen-based Zhongxing Telecom Equipment, popularly known as ZTE. The
reason is simple: the vendors supply large quantities of PHS handsets free of charge to the operator, bundled with the
PHS handset distribution differs from GSM or CDMA in that the phones lack the equivalent of a SIM card, requiring the operator to sell and activate the handsets. As a result, handset manufacturers entering the mainland PHS market have to establish relationships with the provincial branches of China Netcom and China Telecom.
Distribution aside, PHS handset manufacturing lacks the barriers to entry of the GSM and CDMA markets. As the service is technically not a mobile service, no formal licence is required from the MII to manufacture handsets. Handset manufacturers are also not required to obtain 'Ru Wang Zhen' network certificate approvals from the ministry.
In addition to UT Starcom, ZTE, Lucent Technologies and the PTIC Information Industry subsidiary Taili, a plethora of new players have entered, or will soon enter, the market.
Amoisonic and Taifeng handsets are already on sale. Konka plans to ship handsets next month. TCL and Jingpeng have announced their intention to enter the market, as has television manufacturer Skyworth.
Does this all spell another handset inventory train wreck? On the supply side, limitations can be seen in chipsets. Lucent, for example, has pre-sold orders until June. On the manufacturing side, Japanese and Taiwanese PHS original design
manufacturers are reportedly running out of capacity.
As for demand, it appears there are plenty of untapped customers. Xiaolingtong is only just being rolled out in central areas of so-called tier-one cities such as Guangzhou (on April 16) and Beijing (on May 17).
The PHS service continues to be popular in inland cities. In Chongqing, for example, 20,000 subscribers reportedly signed up in the first 10 days of January.
China Telecom and China Netcom are also boosting transmission power for xiaolingtong services to counter recent marketing
campaigns by rival mobile operators pointing out deficiencies in the coverage and service of PHS systems.
PHS handsets are compelling because of their small size, colour screens and reliable data speeds of 32 kilobits per second to 64Kbps.
Applications that exploit the data capabilities of xiaolingtong are only just being marketed. These include 'MiMi' (mobile
information, mobile Internet), which allows PHS handsets to access icons and ringtones, and 'WiWi' (wireless information, wireless Internet), which enables PHS users to connect their computers and digital assistant devices to the Internet.
Finally, and most importantly, the retail prices of PHS handsets are attractive. A ZTE model on sale in Nanjing, for example,
sells for as little as 580 yuan (about HK$546).
At the high end, a UT Starcom model with a colour screen and a polyphonic ring sells for 2,800 yuan - still less than the price of
an average CDMA phone.
Duncan Clark is managing director of BDA China Limited, a telecoms and technology consulting and research firm based in
Beijing. BDA's Web site is at