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Outlook for Xiaolingtong remains sanguine

Business Week

Xiaolingtong, or PAS (personal access system), a citywide wireless communications system, will remain the focus of fixed-line telecoms operators in the coming years, according to industry analysts.

Meaning "little smart" in Chinese, Xiaolingtong has penetrated into two-thirds areas of the country with 5 million subscribers.

Xiaolingtong is small in size, resembles a mobile phone and has wireless communication functions inside a city. Its major advantages over mobile phones and fixed-line phones are that it is cheap and wireless. The major disadvantage is that it does not feature roaming abilities, limiting its use to within city lines.

Based on the fixed-line network, Xiaolingtong charges the same standard as a fixed-line phone, 0.18-0.22 yuan (2-3 US cents) for the first three minutes and 0.09-0.11 yuan (1-1.5 US cents) per minute after that. Xialingtong also subscribes to the "calling party pays" principle, where only the dialler pays.

Charges for mobile phones are much higher, usually ranging between 0.40-0.60 yuan (5-6 US cents) per minute, and both the dialling and receiving parties have to pay.

Featuring almost all of the same functions as mobile phones, Xiaolingtong's price advantage has helped it expand into 20 provinces and over 200 cities.

UTStarcom and ZTE (Zhongxing Telecom), the major equipment providers in the country, have all profited from the popularity of Xiaolingtong.

China's telecoms watchdog, the Ministry of Information Industry (MII), used to take a less optimistic attitude towards Xiaolingtong, with some officials even having called it an "outdated technology."

But the fixed-line operator China Telecom regards Xiaolingtong as its most attractive business to customers. Over two-thirds of the local branches of China Telecom have adopted Xiaolingtong with many of the remaining considering introducing Xialingtong in the near term.

In Southwestern China's Yunnan Province, 70 per cent of new fixed-line telephone subscribers choose Xiaolingtong to supplement their daily communications needs.

In Hangzhou, capital city of East China's Zhejiang Province, many citizens own two mobile terminals: a China Mobile or China Unicom mobile phone and a Xiaolingtong.

"Xiaolingtong is something like wild grass - having great vitality," said Wei Zaisheng, ZTE's vice-president. He said ZTE owns a 40 per cent share in the Xiaolingtong market.

Its major competitor, UTStarcom, which occupies the other 60 per cent, or 3 million of the total 5 million subscribers, registered record breaking growth in 2001.

"It took three years to attract our first 1 million users, three quarters for the second 1 million and only three months for the third 1 million," said Wu Ying, president of UTStarcom (China).

The company gained an additional 1 million subscribers in the last quarter of 2001, he said.

Although it has only been developed in medium and small cities due to policy barriers, Xiaolingtong is gradually closing in on the big cities. In some relatively prosperous cities, including Xi'an, Hangzhou and Ji'nan, Xiaolingtong has become a major revenue pool for the local fixed-line carriers.

UTStarcom has also signed a contract with China Railcom, an emerging fixed-line carrier, to provide PAS services to limited campuses in Beijing.

Officials of the MII have said the government will give more operational freedom to telecoms carriers, suggesting residents of Beijing and Shanghai will be able to access the technology in the near future, industry insiders said.

"Xiaolingtong is not the enemy of mobile phones. It is actually cultivating potential customers for mobile telecoms providers," Wu said.

After landing in Taipei 10 months ago, for example, Xiaolingtong recorded rapid development, despite the city's high mobile phone penetration rate of nearly 90 per cent.

The number of users in Taiwan Province surpassed 200,000 within several months, Wu said, largely due to value-added services like online chatting, games, and digital picture capabilities.

As an excellent supplement to the mobile phone, Xiaolingtong is expected to have another rosy year ahead, he said.

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