China Mobile and China Unicom, the country's dual mobile carriers, are engaged in ongoing price wars in most cities around the country.

According to telecom regulations, mobile phone carriers should follow standard charges set by the Ministry of Information Industry (MII).

Under this standard, China Mobile should charge a 50 yuan (US$6) monthly basic fee and 0.40 yuan (5 US cents) per minute for phone call time. And China Unicom, as the minor carrier, can charge 10 percent less than China Mobile.

But the fact is very few local branches of the two carriers are following the stipulated charge standard. Several major metropolises, including Beijing, Shanghai and Guangzhou, are the only exceptions to the price war pattern.

Industry insiders point out that these cities are not involved in the price wars because both carriers are listed in overseas bourses and price cuts in these major cities would be more easily perceived by the overseas investors and might lead them to back off on investment for fear of loss of profits.

But outside these few "immunized cities," the price wars are heating up around the country. To attract more customers and gain bigger market share, China Mobile and China Unicom have launched many "promotion plans" which involve lower and lower charge packages.

In many cities, a promotion programme called "family network" has been introduced by both carriers. Under the plan, family members pay one fourth of what they would normally be charged, when they make phone calls to one another.

And having only the calling party pay is widely adopted in the "family network" campaigns.

Moreover, the term "family" can be extended to include a company, a factory or a community.

Price cuts of this kind are rife in many cities and significantly slash profits of both carriers.

Facing the rapidly expanding customer base and stagnating growth in profits, both China Mobile and China Unicom have called for a stop to the price wars, but at the same time have continued to launch new preferential price plans.

This situation is the result of complicated factors which indicate that there are deep-rooted flaws in the management and regulation of telecom services, commented telecom experts.

The difference between cost and charges is one of the major factors leading to the frequent price wars, said Yang Peifang, telecom policy expert at the China Academy of Telecom Research.

He said the rapid growth in mobile phone users has led to a drop in the average cost per user. The government-set charge standard should be adjusted to meet the new situation.

The present charge standard for mobile telecom services should be cut significantly, Yang said.

The telecom regulatory authority should play a more active role in ensuring a fair competitive market instead of allowing price wars in which both sides lose, Yang said.

As China's telecom industry matures, mobile carriers should focus more on services rather than simple price cuts, according to Zhang Xinzhu, telecom expert at the China Academy of Social Sciences.

(China Daily August 14, 2002)