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The competition among Chinese mobile carriers is heating up, raising questions about whether the telecom companies are up to the task of moving with the times.

Starting from this month, China Unicom, the country's sole mobile carrier of Apple's iPhone 4, implemented a new provision for new users who sign a contract to buy the smartphone. If the iPhone 4 and China Unicom's SIM (subscriber identity module) card are detected separately, the carrier will freeze the prepaid fee and lock the device.

To some extent, China Unicom has reasons to take this measure.

Many people are using the iPhone 4 on the network of China Mobile, the carrier's biggest domestic rival. They buy the iPhone 4 with China Unicom's two-year contract but they sell the contract at discounts of up to 10 percent of what China Unicom is charging.

China Unicom's new policy has spurred debate and caught the attention of the top industry regulator. It is uncertain how the issue will be resolved.

In the past decade, China's telecommunications suffered from lack of competition because all three carriers were state-owned. That all changed after deregulation of the telecom industry and the debut of 3G last year.

The Ministry of Industry and Information Technology is now trying to encourage wider market competition. Two things have heated up that process: the iPhone debut and a trial program allowing portability of mobile numbers when users switch carriers.

In September, Apple and China Unicom launched the iPhone 4 in the domestic market. Within one week, huge market demand made it difficult to get a new iPhone 4 in the official market.Then market scalpers, or huangniu, bought Unicom contract phones and sold the device at a higher price on the market. The two-year contract was hived off and sold separately. China Unicom is now trying to crack down on the huangniu.In my opinion, the move was as much targeted at China Mobile as it was at the scalpers.

Because of its touch screen, nice display and more than 200,000 online applications, the iPhone 4 is viewed as a strong weapon for China Unicom to grab high-end users from China Mobile, thus lifting its own data services income.

In response, China Mobile has launched free SIM card adaptation services for users of the iPhone, which uses a smaller SIM card, and established a special iPhone services line, which is more professional than that of China Unicom, according to my comparative tests.

As a fight back, China Unicom sent a short message to users and posted it online, saying that it's a waste of the powerful iPhone to use it on China Mobile's slower 2G network. It's like "driving a BMW on a tractor road," the message said.

Aside from iPhone, the two carriers have other reasons to adopt such aggressive strategies. The start of the long-awaited mobile number portability system is nigh, and that probably will greatly change market structure.

China began commercial trials of mobile number portability on November 22 in north China's Tianjin Municipality and south China's island province of Hainan. Number portability allows users to switch to other operators' networks without having to change their phone numbers.

"The eventual nationwide rollout carries negative credit implications for the dominant China Mobile," Moody's Investor Service said in a recent note. "Mobile number portability represents another attempt (by the regulator) to encourage greater competition among China's three state-owned telecom operators," Moody's said.

If the experience of overseas markets is anything to go by, mobile number portability will weaken the dominant position of China Mobile, which now accounts for 70 percent of China's mobile market.

Improve services

It's a sensitive time for all carriers as they prepare for what's ahead.

Even though the iPhone is a star player in all the market maneuvering, it's not a sure-fire path to success for any carrier. And China Unicom's attempt to lock it may show a bit of folly.

"Technologically speaking, China Unicom is not able to lock sold iPhones," said Cai Zhe, a handset industry veteran. "Even Apple's lock on iPhone 4 can be unlocked and jail-broken."

Instead of placing all their eggs in the iPhone 4 basket, both China Unicom and China Mobile should improve their networks and services if they really want to win over users.

Meanwhile, the shortage of iPhone 4 on the market tells us two things: There's a serious lack of competitive models, and there's huge market demand. All carriers should be investing more heavily to develop rival handset products.

Xiao Chen, a new iPhone 4 subscriber at China Unicom, said she's considering going back to China Mobile.

"Unicom has no signal at karaoke and restaurants, while other China Mobile users have full signals. It's a cool phone, but it can't make calls somewhere," Chen said.

The iPhone also has shown itself to be a costly gadget for some.

A woman surnamed Jin recently spent 3,900 yuan (US$582) to update several microblogs through her iPhone 4 during a visit to Moscow, only to get home and find she was slapped with a 3,000 yuan fee for roaming data.

Other iPhone 4 users have also found themselves facing charges of several hundred yuan within one hour or one night because they didn't close automatic update buttons on the phone.

The Ministry of Industry and Information Technology said on its website that it has taken note of such cases and is drafting rules to prevent hidden, excessive charges.

"It can't blame users because it's the responsibility of carriers to tell users how to set up their phones before charging them," said Xiang Ligang, a telecommunications news website founder and industry observer.

Unfortunately, China Unicom hasn't provided any customer advice on the iPhone 4 set-up on the website where it offers fee package choices.China Unicom should be sending each iPhone 4 user a guide book with set-up instructions and fee information, Xiang said.

In the end, the market will sort out who dominates. Carriers quick to adapt to users' needs will win.