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Time to put the consumer first

China Daily

The fastest growing market in the world, the domestic telecom sector, is never devoid of drama. The latest episode is the dispute between a top telecommunications academician and a high-ranking China Telecom Group technician on the Little Smart service.

Built into a city's existing fixed-line network, Little Smart, also called Xiaolingtong, is a quasi-mobile service that lures customers with its low per-minute rate, one-way charges, low monthly fees and low-level radiation. The latest edition of the service also supports short message servicing, wireless e-mail, wireless Internet access, and online content browsing.

Its defects include unstable transmission quality and its inability to roam inter-city.

Kan Kaili, professor from the Beijing University of Post and Telecommunications, said the service is technically out-of-date and therefore should not remain in the market. It will be driven out of the market within three years.

But Wei Leping, chief engineer of the China Telecom Group, refuted this suggestion saying that the service's technology can be improved to a more satisfactory level.

Both are right, in a sense.

Based on fixed lines, Little Smart cannot equal "real" mobile services technically. On the other hand, its transmission quality has become much better due to technological upgrades since its introduction into the domestic market five years ago.

The crux of the issue, however, is not technology.

The problem of inferior technology has been in existence ever since the inception of the service, and long been regarded as a fatal flaw to its growth.

Moreover, market regulators have maintained a hostile attitude towards it until recently they adopted a new, neither-forbid-nor-encourage policy.

The result, by the end of April, the number of registered customers for Little Smart had reached 16 million. The number is significant compared with that of the country's overall mobile service users, which stands at about 200 million. And it has been ushered into major cities like Beijing and Shanghai, two cities previously off-limit.

This seems illogical, though.

Are the consumers ignorant of the low technology of the service and its relatively low voice quality? No, obviously.

Then why do they keep on buying it? The answer is quite simple its low price.

Consumers are rational. They are sensitive to price changes. This is not merely a hypothesis of economics. It is an undeniable truth.

They certainly want better services. But if such services cost them substantially more, they will turn to cheaper substitutes.

The per-minute rate of normal communication fees for a GSM (global systems for mobile communications) service from China Mobile and China Unicom, the two domestic mobile service providers, is 0.40 yuan (4.8 US cents) and 0.36 yuan (4.4 US cents) respectively. Little Smart charges just 0.11 yuan (1.3 US cents) per minute.

The monthly user fee for China Mobile and China Unicom GSM service is 50 yuan (US$6.0) and 45 yuan (US$5.4) respectively while that for the Little Smart is 25 yuan (US$3.0).

Many consumers are thus willing to sacrifice the quality of services they receive to save costs.

Given consumers sensitivity for price changes, a mature market needs to be multi-tiered, providing different services at varied prices. Such a market caters to differing demands.

Before the popularization of Little Smart, there was an absence of a low-end service product in the country's telecoms market. The traditional GSM service is expensive.

That is why Little Smart, although not without flaws, has proven so welcome. The market makes it so.

So the problem is not whether the Little Smart service should be cast aside, as some experts have argued, because of its low technological level. If consumers cannot get access to low-charge services, simply blocking the growth of Little Smart will not improve the situation, and could possibly worsen it.

The problem lies in the pricing mechanism of the telecom sector.

The operators price their services in accordance with government-directed prices. The current rate -- 0.4 yuan per-minute rate and 50 yuan monthly user fee -- was set in 1996, at a time when the domestic mobile telephone service had just begun. At that time there were a mere 6 million users.

Seven years on, the situation has changed dramatically and there are currently around 200 million users. The historic material input of the sector has been roughly digested. Technology has improved a lot.

It is a natural and inevitable trend to see the service rate go down.

Despite consumers persistent calls for reduced service charges, however, telecom regulators and operators remain adamant. They are too fearful of seeing their revenues reduced to give the reins to the market when it comes to deciding prices.

Their refusal to cut the rate has contributed to the success of Little Smart, a system which fills a gap in the existing market.

Had they adopted a more market-orientated pricing policy, the charges would have possibly dropped to a lower level, giving consumers better, but cheaper services. And it would have been unnecessary for people to subscribe to the Little Smart service.

Lower rates, better services, those are the wishes of consumers. They should be the goal of telecom regulators too.

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