Guangdong Telecom, a unit of the fixed-line giant, recently launched the service in Guangzhou, Shenzhen and Dongguan.

Those cities allow mobile subscribers to have their cellphone calls originating from fixed lines forwarded for free. Mobile operators usually charge for the service.

Industry insiders and analysts contend the service violates industry regulations and will eat into mobile operators' incomes.

"Such an act can be viewed as a breach of the interconnection and network access," said Xu Mu, a telecoms analyst with Beijing-based CCW Research.

The new service may erode mobile operators' revenues, as it is one-side charging, Xu told Business Weekly.

China Telecom launched the service in a bid to retain its subscriber pool, Xu said.

The growth of fixed-line subscribers in China has slowed while the number of mobile subscribers continues to grow rapidly.

Mobile subscribers are expected to outnumber fixed-line users early this year.

Edward Yu, president of Analysys Consulting, questions whether the service will appeal to consumers or affect mobile operators' earnings.

"The new call-forwarding value-added service lacks lustre for mid and high-end users, due to its lack of mobility," Yu said.

The new service enables mobile subscribers to forward their calls to a fixed-line, skirting mobile operators' fee-based call-forwarding services.

However, analysts agree a large-scale roll-out of such a service would impact significantly on mobile operators' earnings.

"Mobile operators would not ignore the new service if it was deployed on a large scale," Xu said.

China Mobile, the country's No 1 mobile operator, usually charges 0.4 yuan (5 US cents) to 0.6 yuan (7 US cents) per minute for incoming calls.

China Mobile lowers the fee to 0.2 yuan (2 US cents) per minute if the user forwards the call to another line.

But mobile subscribers in the three cities no longer pay to receive calls originating from fixed lines if they install a special device provided by Guangdong Telecom.

Guangdong, one of China's most-affluent provinces, is a major revenue contributor to China Mobile.

China Mobile has reportedly asked regulators to investigate the new service.

Local media have reported that Guangdong Telecom defied Guangdong Provincial telecoms regulators' requests that the service's roll-out be delayed.

Insiders say China Mobile and Unicom are closely monitoring the service, as they are trying to make it more difficult for China Telecom and Netcom's entry into the mobile business.

"I expect such skirting, which falls into a regulatory grey area, will reoccur with the escalating competition in the domestic telecoms market," Yu said.

Experts called on the central government to quickly implement the much-expected telecoms law to address such issues.

"Legislators should formulate the law as soon as possible to better regulate the industry," Xu said.

The legislation, however, seems to have hit a snag.

Officials with the Ministry of Information Industry (MII) said they are still drafting the law, and that it is unlikely to be submitted to the National Congress in March.

While acknowledging the MII has played an important role in fostering competition, experts have been urging the ministry to stop meddling in telecoms carriers' business.

Analysts have cast doubts about MII's role in drafting the telecoms law.

"It's unsuitable for the ministry to act as both an athlete and a referee," one analyst said.

Rumours have been swirling that the State Council is considering replacing the MII with an industry association to regulate the telecoms industry.

An industry insider said such a move would not occur this year.

"One thing we are sure about is the ministry's meddling will be addressed gradually this year," the insider said.

(Business Weekly January 14, 2003)