China Telecom cdma services use the 1900-megahertz frequency band
More on China Telecom, from Bloomerg's
China Telecom Sells Cell Service (Update1)
By Michael Forsythe and Alice Yuan
Beijing, Dec. 3 (Bloomberg) -- China Telecommunications Corp., the country's largest fixed-line phone company, is running an experimental mobile-phone service in the southern city of Shenzhen without telling customers the frequency it's using will be withdrawn at the end of next year.
People buy 1200-yuan ($145) phones to use the Shi Hua Tong service, rates for which are less than half those charged by China Mobile Telecommunications Corp. and China United Telecommunications Corp., the authorized mobile-phone duopoly.
China Telecom, which doesn't have a license to operate mobile phones, is using a legal loophole to lure potential wireless customers in anticipation of winning a cellular permit before the end of 2002, when the experiment is due to end.
``Get your hooks in the water and when you get a license, move them over,'' said Craig Watts, a Beijing-based telecom analyst at BDA China Ltd. ``Tactically, it makes a lot of sense.''
China's Ministry of Information Industry may be reluctant to withdraw use of the frequency from China Telecom, out of concern taking away Shenzhen customers' service could damage its reputation as a consumer watchdog, Watts said.
China Telecom ``hasn't violated any rules'' in setting up the system, said Wang Lijian, a spokesman for China's Ministry of Information Industry. The company is now technically banned from competing with China Unicom and China Mobile in cell-phone services.
Hurt Share
China Telecom was authorized to run experimental local services in seven cities using CDMA (code division multiple access) technology licensed from Qualcomm Inc. Phones for the Shenzhen service can be used only in the city because they don't have the ``roaming'' capability of most mobile phones.
The services use the 1900-megahertz frequency band, which the government plans to reallocate for use by high-speed, so- called third-generation wireless phone networks.
The Financial Times, which earlier reported the Shenzhen network, said it has 70,000 users. China Mobile has about 3 million customers in Shenzhen, China's richest city, and Unicom about 800,000, said Chen Wu, vice general manager of Unicom's local branch.
``They have hurt some of our market share,'' Chen said.
Cheaper
China's mobile phone market overtook the U.S. to become the biggest in the world last August, leaving growth in fixed-line service trailing. China Telecom already skirts the rules by operating public cordless-phone systems using the Little Smart brand in several smaller cities.
Experimental mobile phone networks were also set up in Beijing, Tianjin, Shanghai, Guangzhou, Fuzhou and Xiamen, all wealthy cities on China's east coast. These frequencies will also be withdrawn in 2002, the information industry ministry said.
China Telecom customers, who pay a monthly basic fee of only 20 yuan ($2.40) a month, compared with the 50 yuan charged by rivals, may be surprised when service ends, leaving them with handsets incompatible with a Unicom CDMA network due to come into operation next year.
``The service will not stop, otherwise we would not be offering it,'' China Telecom Customer Service Representative No. 108 in Shenzhen told Bloomberg when inquiries about the system were made.
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