Dural-mode service's prospects blurred
By Li Weitao (China Business Weeklys)
Updated: 2004-08-03 14:18

China Unicom, the country's No 2 cellular operator, is expected to launch its dual-mode mobile phone service, which will support both GSM and CDMA networks, this week.

But analysts suggest the service might not boost Unicom's business.

The dual-mode service, which uses a technology called GSM1X, developed by US-based Qualcomm, enables users to automatically switch between GSM and CDMA networks.

Unlike China Mobile, which operates only the GSM network, China Unicom runs the two -- different -- networks.

"Dual-mode cellphones will be a hard sell in the marketplace," said Guo Chang, an analyst with Beijing-based CCW Research.

A GSM/CDMA dual-mode cellphone, manufactured by LG Electronics, was on display at a telecom show in Shanghai in June 2004. China Unicom is expected to launch the dual-mode mobile phone service soon although analysts have voiced doubts about its prospects. [photocome]

Customers who will use cellphones for the first time will not find the dual-mode cellphone service practical, Guo explained.

In China, cellphone users pay about 50 yuan (US$6) per month to own one telephone number.

It is also unlikely Unicom's GSM subscribers, most of whom are low-end users, will replace their phones with costly dual-mode handsets, Guo noted.

Unicom's GSM service costs 10 percent less than China Mobile's service, due to a government policy designed to support the younger and smaller Unicom.

In June, Motorola, Samsung and LG Electronics, three handset makers designated by Unicom, showcased three dual-mode handset models.

The handsets are widely expected to cost about 4,000 yuan (US$481) each.

CCW Research indicates about 7 percent of China's cellphone users own a handset that costs more than 3,000 yuan (US$361). A mere 1 percent has a cellphone that costs more than 5,000 yuan (US$602).

"The dual-mode cellphone subscription base will be very small," Guo said.

According to media reports, a recent survey conducted by LG indicated about 200,000 dual-mode cellphones will be needed in the Chinese market this year.

Analysts, however, suggest demand will not be that strong.

The dual-mode service is unlikely to fuel Unicom's subscriber growth, said Lu Tingjie, a professor with Beijing University of Posts and Telecommunications.

The prospects of cross-over phones running on GSM and the cost-effective Xiaolingtong service might be better, Lu said.

Xiaolingtong, or personal handy service (PHS), is a limited mobility service promoted by fixed-line carriers China Telecom and China Netcom.

There are no roaming fees with Xiaolingtong, the coverage of which is confined to city limits, but it costs much less than the standard cellular services.

A recent survey conducted by research firm BDA China Ltd indicated 36 percent of China Mobile's subscribers also used Xiaolingtong.

"Many subscribers own two phones in order to receive calls on their GSM phones while using their CDMA phones for heavy usage," said Michael Thelander, founder of US-based Signals Research Group.

"That market opportunity can only amount to so much.

"CDMA in many circles is still considered as a poor man's technology, since it is not as widely available as GSM."

BDA's survey indicated more than 50 percent of Unicom's CDMA subscribers would not have opted for the network had it not been for the free handsets and subscription subsidies that were offered.

As the difference in pricing between GSM and CDMA is not substantial, there is no  "good selling point" for GSM/CDMA cellphones, Lu said.

Wang Yuquan, president of consulting firm Frost&Sullivan (China), said he expects Unicom will offer subsidies to boost the dual-mode service.

However, he said he doubts Unicom will be as aggressive as it was when it kick-started its CDMA service, as subsidies will put Unicom under heavy financial pressure.

The dual-mode service is designed to prevent Unicom's GSM users from switching to other service providers.

GSM has been the largest revenue contributor to Unicom, even though the firm has been focusing more on CDMA.

By the end of May, Unicom had 23 million CDMA subscribers and 77.77 GSM users. China now has more than 300 million cellular subscribers.

However, there has been an exodus of Unicom's GSM users, as the coverage of Unicom's GSM networks is inferior to China Mobile's GSM/GPRS networks.

Last year, 11.5 percent of Unicom's CDMA users switched to other cellular services, while for its GSM service, the figure stood at 29.1 percent, compared with 14.6 percent in 2002.

Unicom boasts the dual-mode phones will enable GSM users to enjoy the higher-speed CDMA service.

Unicom's CDMA 1X service offers a much faster downloading speed compared with China Mobile's GSM/GPRS service.

Unicom has not upgraded its second-generation GSM service to 2.5G GPRS.

As Unicom strives to make its CDMA networks profitable, analysts expect it will not significantly expand its GSM network capacity.

"Unicom faces a tough task in balancing the development of its CDMA and GSM networks," Wang said.

Close