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-Chris
usiness Environment
The telecommunications industry in China has experienced rapid growth over the
last five years. From 1992 to 1996, over US$35 billion was invested in
telecommunications infrastructure. Fixed line subscribers increased from
approximately 11.5 million at the end of 1992 to approximately 54.9 million at the
end of 1996. By the end of 1996, total telephone capacity in both urban and rural
areas exceeded 100 million ports. Total revenue from telecommunications
services was RMB 109.7 billion in 1996, compared to RMB 28.2 billion 1992. The
cellular services sector is one of the fastest growing sectors within the People's
Republic of China (PRC) telecommunications industry, with the growth in number
of cellular subscribers significantly surpassing the GDP growth rate for each of
the past ten years. The number of cellular subscribers in China increased from
approximately 177,000 at the end of 1992 to approximately 7 million at the end of
1996, representing a compound annual growth rate of 47.9% in the number of
fixed line subscribers over the same period. The number of cellular subscribers
increased to approximately 9.4 million as of May 31, 1997. China currently has
the third largest number of cellular subscribers in the world after the United
States and Japan, with cellular services currently available in over 300 cities and
1,600 counties in China. Despite the rapid growth in the number of subscribers,
the cellular penetration rate in China is still low compared to other Asian and
international markets. The first cellular network in China was established in the
mid-1980s. Currently, there are two primary standards used by public cellular
networks in China: the analog total access communication system (TACS)
standard and the digital global system for global communications (GSM)
standard. As of December 31, 1996, TACS and GSM networks accounted for
approximately 75% and 24%, respectively, of all cellular subscribers in China.
Company Strategy
The Company is the dominant provider of cellular telecommunications services in
Guangdong and Zhejiang provinces. Guangdong and Zhejiang are among China's
most economically developed provinces and, as of May 31, 1997, were the two
provinces in China with the largest number of cellular subscribers. As of such
date, the Company serviced an aggregate subscriber base of approximately 2.64
million, which accounted for an estimated 98.4% of cellular subscribers in these
provinces and an estimated 28.1% of all cellular subscribers in China at such
date.
Product/Services Portfolio
The Company's cellular networks in both Guangdong and Zhejiang are based on
the TACS and GSM technologies, with total capacities of approximately 2.8
million subscribers in Guangdong and approximately 994,000 subscribers in
Zhejiang as of May 31, 1997. The Company's cellular networks reach all cities
and counties in Guangdong and Zhejiang. The Guangdong and Zhijiang networks
currently use a total of 25 MHz and 24 MHz of frequency spectrum, respectively,
in the 900 MHz frequency band. In addition, the Company has been given
permission to use 10 MHz of spectrum in the 1800 MHz frequency band for an
indefinite term in each of Guangdong and Zhejiang and plans to use such
spectrum to introduce DCS 1800 systems to expand the capacity of its GSM
networks. The Company had a total of approximately 2.64 million cellular
subscribers as of May 31, 1997. In Guangdong, the number of the Company's
subscribers grew from approximately 484,000 at the end of 1994 to
approximately 1.57 million at the end of 1996, representing a compound annual
growth rate of approximately 80%. In Zhejiang, the Company's subscriber base
grew from approximately 92,000 at the end of 1994 to approximately 475,000 by
the end of 1996 representing a compound annual growth rate of approximately
127%. On initial subscription, the Company's new subscribers are charged a
connection fee for service activation, currently between RMB 2,000 and RMB
3,000 depending on the particular city or region. After initial connection,
subscribers are required to pay a fixed monthly fee, currently RMB 100 in
Guangdong and RMB 62.50 in Zhejiang. Subscribers are not entitled to any 'free
minutes' of telephone use. |
