A low-cost telephone technology developed in Japan continues to make strides in China, amid an industry-wide preoccupation with whiz-bang third-generation telephony and the long wait for licences to offer such services.
Xiaolingtong, a limited mobile service offered by fixed-line carriers China Telecom and China Netcom, remains attractive to cost-sensitive subscribers, even as China Mobile and China Netcom work to entice users with more advanced data services.
In the first half of the year, China Telecom and China Netcom added 14.53 million xiaolingtong subscribers, up 22.27 per cent to 79.75 million. The rate is slower than the 18.35 million new xiaolingtong subscribers added in the first half of last year, but far outpaces growth for the mobile carriers.
In the first half, China Mobile's subscriber base grew by just 9.53 per cent to 224million customers. To increase its xiaolingtong subscriber base further, China Telecom and China Netcom recently began cross-selling the mobile service to their 147 million fixed-line customers. The term xiaolingtong eloquently describes the nature of the service: it is a small-scale (xiao) but agile and smart (ling) communications (tong) service.
The service was introduced in Hangzhou in 1997 and was permitted by the telecoms regulator because it was limited to small geographical areas and was not fully mobile.
This limitation did not impede xiaolingtong's growth. The technology filled an important market gap, providing mobile services for as little as 30 yuan per month, compared with an average revenue per user of 56 yuan per month for China Mobile's prepaid service and 176 yuan for its post-paid service.
Net quarterly additions peaked in the fourth quarter of 2003 and the first quarter of last year, when 20million customers were added. Norson Telecom Consulting described last year as the best for xiaolingtong, with more than 29million new user sign-ups, compared with 24million in 2003.
But subscriber additions have slowed since then.
Norson said this year represented the technology's 'final period of steady growth'.
BNP Paribas Peregrine analyst Marvin Lo said: 'Xiaolingtong subscriber additions will slow because the two operators will be focused on 3G.'
Xiaolingtong capital expenditure would also slow, with China Telecom utilising just 60 per cent of network capacity for the service.
Norson estimated the carriers would spend 8 billion yuan on xiaolingtong this year, compared with 14billion yuan last year.
With 3G licences in the pipeline, China Telecom and China Netcom will need to focus on how to transition their mobile customers to the advanced data services.
Norson analyst Johnny Liu said: 'Once [the operators] can get the licence, their xiaolingtong business will change.' Already, xiaolingtong equipment vendors are beginning to tout new services with features that are more akin to traditional mobile-phone telephony.
One recent development has been the introduction of 'second-generation handsets' launched by UTStarcom, among other vendors. The handsets contain a removable personal identity module (PIM) that is similar to a SIM card. The PIM cards allow xiaolingtong users to slot in a different PIM card for another city's network, allowing customers to use their handset when travelling.
UTStarcom is preparing a handset that will allow the fixed-line operators to offer a converged xiaolingtong and 3G phone.
A UTStarcom executive said: 'Once 3G licences are granted and [services are launched] we will introduce the product to the market.'
An executive from leading telecoms equipment vendor ZTE said the company was studying ways to help fixed-line operators entice subscribers to 3G to lengthen their return on their xiaolingtong investment. A converged solution would give xiaolingtong users the best of both worlds: they could gain access to premium data services without sacrificing the low voice rates offered by xiaolingtong or having to give up their telephone numbers.