Wireless local loop in China

Wireless local loop in China

It is not a new market. Its is know as PHS (technology-related) or Little Smart (marketing label), and is a cheap wireless fixed service. With currently about 85m subscribers (+31%), and accounting for about 60% of new foxed line addition, Little Smart is a success and accounts for 24% of the country' s total fixed-line subscriber base. But now, with possible interference with 3G radio spectrum, it is considered by some experts as under threat when China launches 3G. In 2005, net PHS additions start to slow down with 20m new users vs some 28m in 2004. China Telecom and China Netcom, once banned from mobile operations, did a very good job with their strategies of bundling fixed-line and Little Smart services. But now, China Telecom and China Netcom are given winners of 3G licenses, and are in the process of rolling-out pre-commercial 3G networks. That would pump a big part of their future capex (in 2006, they plan combined capex of only $620m to optimize their PHS networks). So what?

Little Smart will not, however, be phased out rapidly. The service is targeting middle- and low-income customers in small towns or suburbs, who are unlikely to be potential 3G users ( at least for a while). With mobile tariffs falling, Little Smart price advantage will certainly weaken over years and gradually some PHS customers would likely switch to better-quality mobile services. UTStarcom is the main supplier of PHS equipment in China, and has started to refocus itself on new growth market, such as IPTV infrastructure.