China Netcom ordered US$114 million of equipment from UTStarcom Inc. to expand Little Smart, an intra-city cellular service used by city dwellers as a cheap way of making calls. UTStarcom will install base stations and switches in Hebei, Shandong and Liaoning provinces, the California-based firm said.

Little Smart, called "Xiao Ling Tong" in Chinese, costs a fraction of standard cellular services and poses a threat to China Mobile Communications Corp. and China United Telecommunications Corp., the nation's two licensed mobile carriers. It's available in a growing number of provincial capitals, even though China is trying to limit the service to smaller cities.

"That's obviously a threat to our business. But we won't sit around and do nothing," said Chen Yan, a deputy director at China Mobile's planning department in Chongqing.

China Mobile and Unicom serve more than 200 million cell phone customers in a market that adds five million new users every month. Little Smart customers pay as little as 0.2 yuan for a three-minute call, compared with standard 0.4 yuan a minute on a China Mobile phone. The Chinese phone regulator treats the service as an extension of fixed-line services, so users only pay for outgoing calls, compared with payments for both incoming and outgoing calls for cellular subscribers.

Many domestic media are reporting a possible cancel of two-way charging policy within this year. Wang Lijian, news officer of the Ministry of Information Industry, said on Saturday that this is not true. Industry insiders said as the ministry is going to change its leaders after this year's People's Congress, significant policy changes will not happen recently.

China Netcom and China Telecommunications Group Corp., the country's two largest fixed-line carriers, sell Little Smart to more than 10 million people in more than 300 cities nationwide, according to UTStarcom.

Though China sets phone rates and doesn't officially allow discounting, operators are cutting prices as rivalry intensifies.

In Shijiazhuang, provincial capital of Hebei, China Mobile's new "Bai Xing Tong" service charges customers who call other China Mobile phones within the city 0.11 yuan a minute.

China last year promised that China Netcom and China Telecom will receive permits to sell mobile-phone services. China Netcom's latest order, its biggest for UTStarcom based on previously disclosed contracts, brings Netcom's spending for the U.S. company's telecom equipment to US$240 million since November.

(eastday.com January 13, 2003)