Cellular phone systems, unlike pagers, can only operate on a few frequencies.

In China, it is the army which still effectively controls the majority of these.

Under central pressure to become more entrepreneurial to help cover its costs, the PLA last year formed Great Wall Mobile Telecom, a cellular project which also has the backing of the former state telephone monopoly, the Ministry of Posts and Telecommunications (MPT).

These two state monoliths have not had a history of seeing eye-to-eye over who controls the frequencies.

Though strictly a 50-50 joint venture, management of the project has been left in the hands of military planners, rather than bureaucrats at the MPT, who have their recently renamed giant China Telecom to look after.

In the past, the army clearly lacked cash to develop its potential and China's strict rules forbidding foreign companies operating or managing telecom networks made participation by outside companies difficult.

A report by the London-based Economist Intelligence Unit last year suggested the PLA was in even more of a difficult position because foreign companies feared jeopardising relationships with MPT, which remains the dominant Chinese fixed and cellular operator.

Also, United States companies seen dealing with the PLA could face political problems at home.

The third Chinese national cellular network, Unicom, started operating last year and has less than 100,000 subscribers.

It is part of Lian Tong, a company created to compete against MPT, launched under the leadership of the Ministry of Electronics Industries.

'Great Wall could in a short time overtake Unicom as the second main national cellular operator,' Star Telecom managing director Francis Wong predicted.

His company - Hong Kong's second largest paging provider - last week announced details of a joint venture with American company, International Wireless Communications (IWC) to invest and work with Great Wall in setting up its national network, which launches officially later this year.

Star Telecom and the PLA are no strangers. The company has been a trailblazer in terms of foreign involvement with the PLA.

They have been working together since 1992 on the limited introduction of cellular services to a small number of Chinese cities.

These are now to be incorporated into Great Wall's portfolio and form the basis of its national network.

Giving more details of the deal, Mr Wong said he believed the difficulties Unicom was experiencing tapping the existing MPT fixed network would ultimately leave the company lagging.

The rates for the fixed link connection mean, in effect, Unicom customers can only call each other - a situation, according to Telecom analysts, MPT appears in little hurry to rectify.

Under the terms of the latest deal, IWC has acquired a 40-per cent stake of Star Digitel, the previously wholly owned Star company dealing with the PLA. IWC has also injected US$45 million as working capital.

Mr Wong said Star Digitel hoped to have about $150 million to invest in China over the next year.

It appears IWC's deeper pockets and fund raising abilities have been a key factor in its involvement.

On the thorny question of foreign involvement in the Chinese Telecoms area, Mr Wong said Digitel's relationship with Great Wall would be of the established Build-Transfer-Operate (BTO) type, a scheme whereby foreign firms can recoup their investment without taking an equity stake.

In the past, Star has recouped its investments through a system of fees for consulting and services, seen by some as a clever way of skirting the law.

Mr Wong said elements of the new deal were still being worked on.

'We will only do things which make commercial sense. There is still a major role to play helping to get Great Wall up and running.' On Great Wall's prospects, Mr Wong was bullish. He said the network could be rolled out across China on a 'pretty quick timetable', with up to a million subscribers in four years.

Great Wall has a long way to go to catch MPT's service with its 5.1 million existing customers.

There seems little doubt MPT's dominance will remain unchallenged in the medium term. Jardine Fleming has estimated it will have doubled its customer base by the end of next year.

However, the innovation brought by foreign involvement in Great Wall and the more service-orientated culture at Unicom may affect MPT more profoundly than any fight for market share.