China Unicom Group, the mainland's No 2 mobile-phone operator, yesterday took the wraps off the code division multiple access (CDMA) services it hopes will enable it to mount a stronger challenge to industry giant China Mobile. China Unicom hopes the new services to be introduced in January will help increase its user base from 37 million subscribers to 100 million by 2005. Executive director of the group's Hong Kong-listed arm, Li Zhengmao, said the CDMA services would provide excellent voice quality at a lower cost, strong wireless data capability and video conferencing, as well as more efficient spectrum utilisation compared with the global system for mobile (GSM) network rival China Mobile operates. The listed unit will pay its parent a 1.47 billion yuan (about HK$1.37 billion) annual leasing fee to rent network capacity for up to 9.18 million subscribers, in order to provide CDMA services in the areas it covers. The leasing price, 299 yuan a year for each subscriber, or 74.5 yuan a quarter, is in line with analysts' expectations. The remainder of the network is to be operated by the parent company, which budgeted 24 billion yuan to build the first phase of the network. This phase can handle 15.15 million users. Beijing wants to step up competition in the telecommunications sector to enable domestic players to compete with foreign companies when they are allowed to enter the market during the course of the next five years. Niq Lai, telecoms analyst at Credit Suisse First Boston, believed the launching of Unicom's CDMA services would be a big step forward for a more competitive environment in the mainland's mobile-phone sector. It would push China Mobile to improve its GSM service to compete. China Unicom, which also provides paging and fixed-line long-distance services, hopes its CDMA network, operating in parallel with the existing GSM service, will enable it to step up its challenge to China Mobile. It is confident that providing better quality services will allow it to achieve higher penetration of the medium to high-end market segments now served mainly by China Mobile. 'The CDMA services are targeting mid-end to high-end users who have higher demand for data and value-added services but low price-elasticity,' Mr Li said. At the moment, China Unicom lags China Mobile, having just 27.5 per cent of the country's 136 million subscriber market. China Unicom has set out to increase its market share to 35 per cent by 2005. The expected net addition of about 53 million mobile subscribers in the next four years will be split between CDMA and GSM, according to the chairman of China Unicom's SAR-listed arm, Wang Jianzhou. The CDMA tariff would be at state guidance rates, but Mr Wang said China Unicom would offer bucket plans and promotional offers to lure users. Chief financial officer Shi Cuiming said the leasing agreement for the CDMA network meant the listed company could save at least 20 per cent of its budgeted 100 billion yuan capital expenditure for the three years ending next year. These funds could be used to expand the firm's infrastructure, such as increasing its GSM networks. The company expects to see its CDMA services reach positive ebit (earnings before interest and taxes) in the first year of operation. Meanwhile, Mr Wang said nine of 19 approved suppliers would be able to ship CDMA standard handsets by the end of this year, and that they were capable of shipping 19 million CDMA handsets next year if there was sufficient demand. This has raised analysts' concerns about potential over-supply and a pricing war involving CDMA handset suppliers.