A reputation for billing problems and poor network coverage, and aggressive promotion by a low-cost rival, are threatening China Unicom's target for staunching losses on its 20-month-old cellphone network.

Retailers say China's second-largest mobile operator is struggling to sell phones for its CDMA network in Guangdong, a wealthy province key to the company's plan of breaking even on the service nationwide by the end of the year.

China Unicom started its CDMA (code division multiple access) service last year to run in parallel with its established GSM (global system for mobile communications) network.

Vendors at a popular electronics mall in Shenzhen, Guangdong's richest city, told Reuters they have virtually abandoned CDMA handsets amid complaints about irregular billing and poor signals.

Meantime, shops hawking an upstart limited-range service called Shihuatong have sprung up along busy Huaqiang Road, with vendors offering prices well below Unicom's for both handsets and monthly subscriptions.

At the bustling International Electronics City, only a handful of 30-40 handset vendors in the open-air mall offered CDMA handsets. Most were selling models for the GSM networks run by Unicom and its main rival, China Mobile (Hong Kong) Ltd, the world's biggest carrier by number of subscribers.

"We aren't selling too many CDMA handsets," said Qiu Yinyan, whose shop contained only one CDMA model among up to 40 other choices. "People say there are problems with the billing -- they randomly put in charges. Also, the network isn't so good, though the prices are OK."

COMPANY UNAWARE OF PROBLEM

Two other vendors made similar complaints, though a spokesman for China Unicom in Hong Kong said the company was not aware of a billing problem.

Unicom's new chairman, Wang Jianzhou, has said Guangdong is critical to his goal of achieving break-even for the nationwide CDMA network by year end.

Unicom's CDMA networks in Liaoning, Shandong, Zhejiang and Jiangsu provinces, and in the cities of Shanghai and Beijing, all broke even in or before July, Wang said.

"If Guangdong can achieve this level, there will be no problem," he said in late August. "Right now we think this will be very difficult because Guangdong's (loss) is very big."

Wang declined to be more specific, saying only that the nationwide CDMA network lost 590 million yuan (US$71 million) before taxes in the first half of this year.

The company had 12.05 million CDMA subscribers at the end of August, up from 1.69 million a year earlier.

Wang said the company has brought in a troubleshooter from its Chongqing office to turn around the situation in Guangdong, an economic powerhouse province next to Hong Kong that accounts for more than a third of China's exports.

But with the end of the year less than three months away, Unicom faces a daunting task in Guangdong. And fixing its reputation may prove easier than fighting off the Shihuatong service offered by China Telecom Corp, China's biggest fixed-line operator.

China Telecom and its chief rival China Netcom have spent billions of dollars to build up limited-range services, also known as PAS (personal access system), throughout China over the last two years. They are now offering aggressive incentives to promote their investment.

On Huaqiang Road, Shihuatong vendors were virtually giving away PAS phones, offering 400 yuan worth of free service with the purchase of a 350 yuan handset. The cheapest CDMA handsets were selling for about 450 yuan, with no free service.

A vendor catering exclusively in CDMA handsets, who would only give his surname as Zhuang, said he is lucky to sell one handset a day and sometimes goes an entire day without a sale from his small shop.

A woman next to him selling Shihuatong phones averages closer to five or six sales a day, he said, adding that he wouldn't stay with CDMA if his shop wasn't owned by Unicom.

"I've done this a few months now," he said. "It's getting worse and worse. The longer I do it, the worse sales get."

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