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Luring Little Smart's loyal legions

ONE of the hot topics for China's technology-watchers is the protection of consumer rights for the 70 million phone users on Little Smart, amid expectations the service will be turned off by 2011.

Little Smart's closure will trigger more competition in the domestic telecommunications market, just like the upstart company did when it was launched 10 years ago.

The competition may mean more reasonable prices and better service to more than 600 million Chinese cell phone users, analysts say.

Little Smart is a service for a limited area that doesn't allow roaming. It has been popular among low-income households and migrant workers because it is cheaper to use than full-service cell phones and doesn't charge for incoming calls.

China aims to halt the Little Smart service in order to provide more frequency space for 3G development. By 2011, the current Little Smart frequency will be taken up by China Mobile's 3G network, based on TD-SCDMA (time division - synchronous code division multiple access) technology, according to the Ministry of Industry and Information Technology, the industry regulator.

By the end of last year, China's Little Smart user base was 69.83 million, compared with 84.54 million a year ago. During its peak period about three years ago, China had almost 100 million Little Smart users, said the MIIT.

Shanghai alone has more than 1 million Little Smart users, about 5 percent of the city's population, according to China Telecom's Shanghai branch.

Consumers are unhappy about the prospect of losing the cheap service.

"I won't stop using Little Smart unless the carrier gives me suitable compensation," said Ding Xueli, a retired woman.

Ding, who subscribes to China Telecom's Little Smart business, spends about 15 yuan (US$2.20) each month on calls. It will cost her about 30 yuan if she transfers to China Mobile's alternative package, and she will also be forced to change her number.

"Little Smart users are price-sensitive groups like students and the elderly, and they usually only use voice services," according to an official at Analysys International, a Beijing-based IT consulting firm.


The current Little Smart carriers, China Telecom and China Unicom, will provide favorable conditions and perhaps even compensation to the users, industry sources said.

The carriers said they will continue providing services until the deadline to switch off and bring "multi-choice and related services to all Little Smart users."

The regulator is drafting a detailed plan to deal with the 70 million Little Smart users, but it hasn't been made public yet, said Li Zhenkun, vice director of the Shanghai Communications Administration, who added that the issue is "too sensitive to talk about more."

China Telecom, one of the country's three telecommunications companies, warned earlier this month its Little Smart profits for last year could "decline significantly" from 2007 as users deserted the service and the firm was forced to offer favorable packages to encourage users to switch to full-mobile services.

China Telecom is estimated to have between 27 billion yuan and 30 billion yuan worth of Little Smart assets. According to the average of five analysts' forecasts, 2008 net profit for Little Smart services is expected to be down by 90 percent.

Besides the complaints and the write-off costs, the end of Little Smart brings new opportunities to the three top carriers in China, who are all hoping to sign up a share of Little Smart users after 2011.

"It's a unique market opportunity," said Sandy Shen, an analyst at Gartner Inc, an American IT consulting firm. "Every carrier aims to attract the 70 million users and each of them will compete on price, service and network quality."

The challenge to China Telecom and China Unicom is how to persuade users to transfer to their new mobile networks, rather than switch to bigger rival China Mobile.

The wider choices and better pricing expected with such cutthroat competition are likely to benefit all cell phone users.

Switching over

Shanghai Mobile and Shanghai Unicom say they will offer competitive mobile packages to attract Little Smart users to switch over, such as free incoming calls.

From now on, all new mobile services must allow users to receive phone calls at no charge, said Li Yizhong, head of the MIIT.

The regulator aims to make the market more competitive and protect the rights of the consumers, Li Yizhong said.

Telecommunications tariffs in China dropped 11 percent last year, following a 13-percent reduction in 2007.

"As the telecommunications industry continues to develop and competition forms, there is still room (for tariffs) to fall," said Li Yizhong.

China Mobile now has 70 percent of mobile phone users in China, but how current Little Smart users choose to upgrade once their current choice is taken off the table may change the market structure, according to Analysys.

China started a telecommunications industry reorganization last June. During the revamp, China Mobile acquired China Tietong; China Telecom, the country's biggest fixed-line operator, acquired China Unicom's CDMA business; and China Unicom merged with China Netcom, then the country's No. 2 fixed-line operator.

With all the consolidation. Little Smart is regarded as superfluous.

In 1998, China Telecom, which did not have a mobile licence, launched the Little Smart system, modeled on Japan's personal handy-phone system, as its answer to the full wireless services provided by the country's then two official mobile operators, China Mobile and China Unicom.

For China Telecom and China Netcom, Little Smart has lost its value because these two former fixed-line operators have now obtained full mobile licenses.

"Now it's time for them to invest in 3G and attract as many more new users as possible, including former Little Smart customers," said Shen.

China issued 3G licenses to the top three telecom firms in January to stimulate the economy during the economic slump. The three have already invested 100 billion yuan in 3G networks.



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