Little Smart 'cell' phone very, very smart in China BEIJING - "The countryside," Mao Zedong once said, "surrounds the city." Granted, the Great Helmsman probably didn't have China's wireless market in mind when he coined this basic dictum of guerrilla warfare. But the strategy made famous by China's preeminent communist has been put to effective use by China's fixed-line telecommunications operators for decidedly capitalistic purposes: to grab a share of China's vast mobile market. And the upstart system - known in China as Little Smart - is expanding aggressively into Southeast and South Asia. With some 270 million mobile subscribers, China is now the world's largest mobile market. Faced with long waits and high fees for land-line installation, many Chinese consumers naturally opted for cellular service instead: mobile subscriber numbers surged to pass fixed-line users last year. After Beijing forced China Telecom to surrender its cellular business to the newly created companies China Unicom and China Mobile in the mid-1990s, the erstwhile monopoly operator - joined later by its northern China-based rival, China Netcom - could only watch from the sidelines as mobile subscribers multiplied and fixed-line revenue growth fell off. Salvation for the ailing fixed-line carriers came from an unexpected quarter: a wireless local loop (WLL) technology called Personal Handyphone System (PHS) that had been tried, without much success, in Japan. Retooled for the Chinese market by an obscure US-based company called UTStarcom (Nasdaq: UTSI) and rechristened "Personal Access System" (PAS), the service was quietly introduced in 1998 in small, remote cities in western China. "The key was that when China Telecom lost their mobile business, they lost their growth point," says Ying Wu, the US-educated chief executive officer of UTStarcom's China subsidiary. "We saw a golden opportunity: Sure, the top 20 percent income earners will be cellular subscribers. But that leaves the middle 50 percent - 650 million people - who need wireless service but for whom affordability is the issue." Little Smart takes mobility to the masses China Telecom was quick to recognize that this quasi-mobile phone service offered a back door into the booming mobile market. It gave it a brand - Xiaolingtong or "Little Smart" - and priced it low enough to bring mobility to the masses. A Little Smart handset looks like a cell phone and, for the most part, works like a cell phone: users can make calls, send text messages, disrupt meetings and annoy theater-goers just as they can with a standard cell phone. Technically, however, Little Smart is a limited-mobility extension of the fixed-line phone network. Think of it as a revved-up household cordless phone with a citywide reach: Little Smart users connect to the copper wire network through base stations placed on rooftops around their city. The only functional difference from cellular phones is that Little Smart users can't roam beyond their home cities. That, and one more major difference - cost. Little Smart users pay about one-fourth of what regular cellular subscribers do for air time - a major draw for China's cost-conscious consumers. Subscribers are charged a monthly fee equivalent to US$3, and a 10-minute call averages out to about 12 cents. What's more, unlike cellular service in most parts of China, only the calling party pays. Sarah Zhao, who works as a secretary at the Ruijiin International School in Tianjin in the northeast, bought her Little Smart in November for the equivalent of $56. "I typically save 50 yuan [about $6] on my monthly phone bill," says Zhao. It doesn't sound like much until you realize that the 27-year-old only takes home the equivalent of $120 a month. For Little Smart and the Alameda, California-based UTStarcom, it hasn't been smooth sailing. China's two licensed mobile operators, China Mobile and China Unicom, recognized the threat Little Smart represented and lobbied hard to keep the "poor man's mobile phone" out of the market. During Little Smart's first few years, the Ministry of Information Industries (MII), China's main telecoms regulatory body, was downright hostile: it ordered a halt to Little Smart deployment while it tried to decide just what it was, and for a time the ministry banned wireless activity in a frequency range that happened to include the 1,900-1,920 megahertz at which Little Smart operates. That was before it settled on a compromise policy that allowed Little Smart to operate in the provinces as long as it kept out of the big cities. Upstart finally won over ministerial mandarins But Little Smart braved these choppy regulatory waters, surmounting the skepticism of technologists and finally convincing ministerial mandarins officially to pronounce Little Smart an extension of fixed-line service. "It's gone from a policy of 'grow quietly, but grow' to one of almost no regulation at all," says Duncan Clark, co-founder of the Beijing-based telecoms consultancy BDA China Ltd. The secret of its success: Little Smart is backed by popular demand. By serving China's vast low-end market with the right technology at the right price, Little Smart built its strength in the provinces a la Mao, before the MII relented and Little Smart marched triumphantly into the cities. "After service launched in Beijing, MII's new minister, Wang Xuedong, pronounced that Little Smart appears to be the people's choice, and the ministry line now is, 'We will neither support nor hinder.'" Between them, China Telecom and China Netcom added an average of 2 million new subscribers a month in 2003. "Two out of every three new fixed-line subscribers are Little Smart users," says UTStarcom spokesperson Richard Feng. Little Smart now boasts some 38 million users across China - nearly 15 percent of total fixed-line phone subscribers, and all within three years. Little Smart is selling well in Beijing, where service was launched in mid-2003: more than half a million Beijingers have already signed up. Shanghai, the jewel in the crown, is next: Little Smart is already available in the suburbs of China's largest city, and full service is expected to be launched in the city proper this year. The MII has recently mandated that carriers facilitate short message service (SMS) interconnection between Little Smart and the cellular providers, allowing China Netcom and China Telecom finally to tap into China's enormous SMS revenues: an estimated 120 billion text messages were sent in China in 2003. All this has of course been very good for Ying Wu, who arrived at the New Jersey Institute of Technology in Newark to begin graduate studies with just $27 to his name. Wu, with his down-to-earth demeanor and distinctive facial hair, is feted by the Chinese media as a model of a successful returnee entrepreneur. According to Forbes, Wu now ranks as the 43rd-richest man in China, with a net worth of $186 million. Expanding fast into Southeast Asia, South Asia UTStarcom, which already dominates the China market for Personal Access System (PAS) equipment and Little Smart handsets, is now expanding aggressively in Southeast Asia, Latin America, Africa and the South Asian subcontinent. The company has signed contracts to provide nationwide PAS coverage to Honduras, and UTStarcom-supplied PAS networks have serviced the Vietnamese cities of Hanoi and Ho Chi Minh City for a year. Tests with both private and state-owned carriers in India currently are under way. Could Little Smart take off in the United States? "It's unlikely," says Dave Carini, an analyst with Beijing-based telecoms consultancy Norson. "Even in China, many people are unhappy with Personal Handyphone System signal quality and the ability to carry on a conversation while moving at high speeds. In the US, I think the average consumer is willing to pay a few bucks more each month for a more reliable network." Complaints about signal strength are common from Chinese consumers, but most are willing to accept some sacrifice in call quality for the savings they realize. "Some of my friends have given Little Smart the nickname 'Wei Wei Call' because you're always saying 'Wei? Wei?' (Hello? Hello?) every time you call," says Sarah Zhao, the secretary in Tianjin. "In my experience, it's true that sometimes your call gets dropped or people can't get through, but it really is cheap." Just in case, she carries two phones, using her GSM (Global system for mobile communications, a leading digital cellular system) phone when signal strength on Wei Wei Call flags. "In early days, there were some disadvantages. Handover was too frequent, quality was not so great," admits UTStar spokesperson Feng. "But in 2003 we've made great improvements to core networks and in base station coverage." Little Smart now moving up-market Meanwhile, Little Smart has started moving upmarket. "By the end of 2003, there were over 100 models of Little Smart phone available on the market, made by 25 different manufacturers," says Carini, the Beijing telecoms analyst. "High-end models are still far cheaper than many high-end GSM and CDMA [code division multiple access] handsets, yet still have the latest features, such as color screens, cameras, and polyphonic ring tones," he adds. UTStarcom hopes soon to obviate the need for Sarah Zhao to carry two phones: dual-mode GSM-PAS handsets are expected to come on the market this year. "Demand is going to be very strong," predicts Feng, the UTStarcom spokesperson. "Every time we demo these handsets, people ask if they can buy them right away." There are clouds on the Little Smart horizon: China Mobile and China Unicom are weighing significant tariff cuts, largely in response to competitive pressure from Little Smart, and they are likely to implement Calling Party Pays pricing this year. And with the fixed-line carriers expected to receive 3G (third-generation mobile technology) licenses late this year or in early 2005, some analysts speculate that carrier support for Little Smart will wane. Despite skepticism from overseas Chinese, for Wu - the inventor and China's 43rd-richest man - the nation is still very much the land of opportunity. "My Chinese friends in the States say to me, 'Ying, you guys came back to China 10 years ago and made it, but it's too late for us now.' But I tell them, 'You'll regret it even more if you don't come back 10 years from now.'" BINNEH S MINTEH NEW YORK UNIVERSITY ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ To Search in the Gambia-L archives, go to: http://maelstrom.stjohns.edu/CGI/wa.exe?S1=gambia-l To contact the List Management, please send an e-mail to: [log in to unmask] To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~