China to hang up fading low-end wireless service

BEIJING, CHINA: China will discontinue PHS, a low-end wireless phone service that once boasted 100 million users, by 2011 to clear the airwaves for its homegrown 3G wireless service, TD-SCDMA, a regulator said on Wednesday.

Under the new directive, the Ministry of Industry and Information Technology (MIIT), the country's telecoms regulator, has told operators to clear spectrum currently used for personal handphone system (PHS) service, a ministry spokesman said.

The move will affect two former fixed-line carriers, China Telecom and China Netcom, which previously used PHS, known locally as "Little Smart" or Xiaolingtong, as a low-cost alternative to true mobile services offered by China Unicom and China Mobile.

China Netcom was merged with Unicom in a recent industry overhaul, giving the former access to the latter's wireless networks. In the same restructuring, China Telecom received a licence to directly offer third-generation mobile (3G) services.

Following its launch in 1998, PHS service boomed earlier this decade as consumers embraced the technology for its cheaper fees despite severe roaming limitations.

China Mobile and Unicom responded to the PHS threat by sharply lowering their fees in recent years. As a result, the number of PHS subscribers dropped to 69 million in 2008 from a peak of more than 100 million, according to MIIT figures.

China Telecom said it has been letting its PHS system lose subscribers in recent years in line with its strategy, with 50 million subscribers on its network as of last September.

"As a result ... its impact on the company's overall business development was minimal," the company spokesman said.

Unicom, which had 20 million PHS users as of last September, said its PHS service would continue as normal as it studied the new regulation.

The move is not likely to have a huge impact on either Unicom and China Telecom, as PHS users are often seen as lower margin, price sensitive customers.

"The contribution from PHS users is not that much," said Tang Mingjun, a telecom analyst with Shenyin Wanguo Securities in Shanghai.

The bigger impact will come from one-off asset write-offs by 2011, Tang said, adding that China Telecom and Unicom have 30 billion yuan ($4.4 billion) and 12 billion yuan ($1.8 billion) worth of PHS assets, respectively.

Shares of China Telecom rose as much as 2.9 percent before heading south in afternoon trade and closed 0.72 percent higher. China Unicom closed up 0.29 percent at HK$6.98.

Both shares lag the benchmark Hang Seng Index, which gained 2.2 percent.