Analysts gloomy on PHS prospects

Despite having a record of being one of the longstanding underdog success and survival stories in the Chinese telecoms sector, analysts are now foretelling the demise of PHS services in the relatively near future. PHS, or personal handy system, subscribers enjoy limited local roaming within the vicinity of their home town, but cannot generally roam further afield with their PHS handset. However, the enthusiasm of China's fixed-line operators for the technology, which has enabled them to sneak in through the backdoor to China's mobile market, combined with very competitive pricing and one-way charging, has ensured strong popularity for the technology among China's mobile consumers.

However, industry analysts are now saying that it is unlikely the service will survive more than five years from the launch of third generation, 3G, mobile services in the country later this year or early in 2007. To the end of June this year, there were 92 million PHS subscribers up and down the country with an annual market value of around Rmb44.16 billion, based on average revenue per user (arpu) of around Rmb40 per month, less than half that for conventional GSM or CDMA mobile networks.

Even the Ministry of Information Industries (MII), is now talking about very limited prospects for the technology in the medium to long term future. The gloomy outlook can be put down to the combination of several factors. First, it is widely expected that both fixed line PHS operators - China Telecom and China Netcom - will be awarded 3G operating licences, after which they will be keen to promote 3G services rather than PHS. They will also have heavy spending commitments to make in rolling out the new networks. However, PHS has also lost much of its earlier appeal. In the past, PHS's big selling point was price. With one-way charging for calls and tariffs a fraction of those for conventional mobile networks, the PHS alternative had an immediate appeal, particularly among poorer sections of the population and in the less economically developed parts of the country. However, in recent months, mobile operators and handset makers have both been pushing low cost 2G services and mobile subscribers in many parts of the country enjoy one-way charging through various special offer packages. Therefore as the cost of 2G calling spirals downwards, PHS is losing its competitive edge.

CMI - 22/8/06