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Cash flow dries up in IT sector

Business Weekly

Domestic problems are dragging down China's telecoms market, which may see its growth momentum slow down this year.
The major problem is the unstable situation following the break-up of China Telecom into two companies, industry insiders said.

The split of China Telecom, the country's dominant fixed-line telecoms carrier, was announced late last year, and since then the company has virtually stopped investing in projects.

The company used to be the biggest buyer of telecoms equipment and contributed greatly to the rapidly expanding revenues of vendors including Nortel Networks, Lucent and Cisco.

Since the announcement of the split, China Telecom has signed practically no new contracts.

China Telecom and China Netcom, the two new carriers expected to operate in the south and north respectively after the split, were scheduled to start competitive operations around mid-February.

But many internal problems emerged during the split-up of assets, and the two have postponed their launch again and again. According to sources from the Ministry of Information Industry (MII), the launch date has been postponed one more time to May.

Busy dividing assets, the two firms have been left with no time or energy to introduce new services and attract more customers, and this stagnant situation may significantly drag down the growth rate of the fixed-line business, industry insiders said.

In the mobile sector, China Mobile and China Unicom also have showed signs of deceleration.

China's mobile phone penetration rate reached 11 per cent with 155.85 million users in February, making attracting new customers more and more difficult.

Over half of the new customers tend to buy pre-paid services to better control their spending. These pre-paid customers are regarded as "low-end" consumers and bring in lower revenues for operators than contract users.

"The mobile phone penetration rate has reached a relatively stable level. Without breaking out preferential conditions, like charge cuts, the carriers can hardly retain their previous high rates of new customers," said Zhang Xinzhu, a telecoms researcher with the Chinese Academy of Social Sciences.

Besides facing the difficulty of attracting new customers, the two also have been mired with technology development problems.

China Mobile, which earlier promised to introduce the 2.5 generation (2.5G) service called GPRS (general packet radio service), showed hesitation as the trial operation last year did not receive a strong market response.

And China Unicom is worrying over its CDMA (code division multiple access), a newly launched nationwide network which also received lukewarm market response.

As the bulk of Chinese customers have become subscribers of GSM (global system for mobile communications) - a technological counterpart of CDMA but enjoys a much larger user base worldwide - Unicom is taking a risky gamble on its CDMA network, experts said.

Unicom's CDMA network, which swallowed at least 24 billion yuan (US$2.9 billion) in the first phase of construction, attracted only 650,000 users between January and March.

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