The intense battle for supremacy between China Mobile and China Unicom is set to continue unabated, as the world's biggest phone market further develops.

"As the market becomes even larger and more open, we have no doubt that competition among the country's duopoly of mobile carriers will become increasingly ferocious," said Chen Jinqiao, director of the China Academy of Telecommunications Research under the Ministry of Information Industry (MII).

More mergers and acquisitions, price cuts, and integration and consolidation moves are on the horizon as the rivals attempt to ensure their future expansion and consolidation, he told China Daily.

The latest move for China Mobile, the world's largest mobile phone operator by subscribers, was to purchase the 10 remaining provincial networks and assets and two subsidiaries from its parent, China Mobile Group.

The US$4.1 billion purchase was completed last Thursday, according to a China Mobile statement.

The provincial networks and assets were in the Inner Mongolia, Ningxia Hui and Xinjiang Uygur autonomous regions, and in the provinces of Jilin, Heilongjiang, Guizhou, Yunnan, Gansu and Qinghai.

"The purchase won't have any substantial influence on our listed company's performance," said Gao Songge, an official with China Telecom Group.

"However, it will help a lot to reduce operational costs."

Dai Chunrong, an analyst from China Securities, said: "The purchase of new networks will be quite conducive for China Mobile to further widen its scope and range of business."

Figures show the 10 provincial networks had 24.5 million registered subscribers, accounting for about 64 percent of the total market share.

Analysts say with the emerging saturation and stable growth of the coastal market, the northeastern and western regions offer huge potential for the company.

"The purchase enables us to put all of our parent's assets into our listing arm since we have initiated an IPO (initial public offering)," Gao said.

Acquiring assets from parent groups is a common practice for China's three largest telecommunications companies, which have all made IPOs with their parents' most profitable provincial networks.

Each company has then purchased the less profitable networks from the parent companies.

In the capital market, Unicom also announced last week that it would issue 1.5 billion rights issue on the Shanghai A-share market.

At 3 yuan (36 US cents) per share, the company plans to raise 4.5 billion yuan (US$542 million).

China International Capital Corp will be the major underwriter, the company said in a statement.

Apart from the capital market, both China Mobile and Unicom have turned to developing more wireless data services to cultivate new revenue growth areas besides voice business.

To compete with Unicom's code division multiple access (CDMA) 1X networks, China Mobile announced recently that it plans to upgrade its current GPRS or general packet radio service networks to the more advanced enhanced data rates for global evolution (EDGE) system.

Offering a faster downloading speed than the second generation (2G) global system for mobile communications (GSM), GPRS is regarded as a 2.5G wireless technology.

EDGE is usually referred to as 2.75G technology. It is faster than GPRS, but slower than 3G wideband CDMA (WCDMA) technology.

China Mobile's GPRS service offers a downloading speed of about 40 kilobytes per second (kbps), while Unicom's CDMA1X service, already in place, offers a speed between 50 and 97 kbps.

Due to the faster speed, CDMA1X offers richer mobile wireless data applications.

In comparison, China Mobile's GPRS service has grown slowly since being launched in 2002.

Some analysts believe the faster speed will help China Mobile foster its wireless data business.

Unicom's CDMA1X networks, in the second phase of construction, should enable a downloading speed of 144 kbps once completed.

EDGE is expected to offer a downloading speed of 150 kbps.

Therefore, it will enable users to enjoy better laptop browsing, Internet streaming and video streaming on mobile phones.

According to equipment providers, the upgrade from GPRS to EDGE will require a small incremental investment for triple GPRS data rates and voice capacity.

As a result, the move is expected to result in several purchase orders for network equipment, which may include telecom equipment vendors such as Ericsson, Nokia, Siemens and Nortel.

However, some industry experts have questioned EDGE's development, even though it is considered a natural evolution for all GSM operators and a faster path to 3G. Currently, EDGE is available globally on 16 networks with 12 kinds of terminals.

Many overseas telecom operators are upgrading their GSM networks directly to WCDMA.

Figures show that by the end of May, there were about 6 million WCDMA users.

"I don't think it's necessary for China Mobile to launch an EDGE service if the Chinese Government is going to launch 3G before the end of next year," Dai said.

"If the Chinese Government decides to issue 3G licenses by no later than next year, then launching EDGE will cause investment redundancy."

Many experts believe regulators will award the 3G licenses sooner rather than later, once they finish 3G-related trials, which are scheduled for September.

"Based on the CDMA1X network, we will continue to hammer out more new wireless services and applications this year," said Zhai Yibing, vice general manager of Unicom's Value-added Services Department.

According to Zhai, Unicom is aiming to achieve a sales volume of US$4 billion yuan (US$480 million) in this coming fiscal year.

In another development, besides consolidating their market shares, both China Mobile and Unicom have been making great efforts to attract new subscribers since the start of the year.

According to MII figures, the number of mobile phone subscribers in China topped 300 million by the end of May. Unicom had about 101 million of them.

It will introduce dual-mode mobile services very soon in a bid to lure more high-end subscribers.

"We are very confident about the new services as they will enable our customers to enjoy products from both our networks and provide a new communications experience," said Yu Yingtao, deputy general manager of Unicom's marketing department.

Under the brand name "World Wind," the dual-mode mobile phone service that will support GSM and CDMA networks will enable users to transfer from GSM and CDMA networks automatically.

So far, Motorola, Samsung and LG Electronics offer dual-mode handsets.

Despite having a duopoly, China's mobile giants are also facing competition from two of the nation's major fixed-line carriers, Dai from China Securities said.

Both China Telecom and China Netcom have been developing "Little Smart" wireless phone services.

"Little Smart," also called Xiaolingtong, is built onto the existing fixed-line network and lures users with low per minute rates, one-way charges and cheap monthly fees. It does not allow roaming between cities.

Price wars are the most frequent way that both China Mobile and Unicom compete with each other. They are also an effective method against Xiaolingtong.

"It is quite a good way to attract subscribers," Dai said.

According to Dai, the constant price reductions show that there is ample room for all telecom operators.

Sources close to the MII, China's telecom watch-dog, say it is unlikely that the ministry will come up with new policies to prevent price wars.

"The MII is likely to crack down on foul play instead of telecommunications fees," said an official with the MII, who declined to be named.

According to the official, the ministry is gradually loosening its control on fundamental telecommunications fees and pushing telecom firms to become more market oriented.

(China Daily July 7, 2004)