China Netcom Starts Discount Mobile Service In Rural Beijing

 

BEIJING -(Dow Jones)- China Netcom Group has sttarted offering its discount mobile phone service in a rural county of Beijing, a development that is sure to put further pressure on the country's two major mobile operators

The discount service, known as Xiaolingtong, or "Little Smart," is widely popular among lower-end users and has over the past year been launched in many of China's major cities.

Though there aren't clear regulations on Xiaolingtong's scope, there was often said to be an agreement with the government for operators not to launch the service in the country's three richest cities: Beijing, Shanghai and Guangzhou.

However, customer service employees in China Netcom's Beijing unit said Tuesday they have started signing up Xiaolingtong subscribers in Huairou county, an area governed by Beijing municipality though outside of the city proper.

Investors have been worried that greater competition from Xiaolingtong will erode the market share and profit margins of the traditional mobile operators, and in recent months have driven down the shares of their listed units, China Mobile (Hong Kong) Ltd. (NYSE:CHL - News) and China Unicom Ltd. .

Both companies have admitted that the greater competition for lower-end users brought by Xiaolingtong has led them to use more promotional offers and discounts to lure subscribers.

However, the Huairou county service is itself starting off with a promotional offer that China Mobile and China Unicom will likely be hard-pressed to match: free local phone calls until April 20. Even when that expires, Xiaolingtong users will pay just 0.11 yuan ($1=CNY8.28) a minute for call time, and won't be charged for received calls.

Subscribers to the conventional mobile services of China Mobile or China Unicom, by contrast, have to pay for both incoming and outgoing calls.

The major drawback for potential Xiaolingtong subscribers in Huairou is that the service only works in their county. Subscribers won't be able to use their phones if they travel to Beijing city.