China "Little Smart" Subscribers Reach 10 Million At End-Sep Thursday October 17, 11:44 pm ET

BEIJING -(Dow Jones)- The number of subscribers in China to the discount mobile phone service known as Xiaolingtong, or "Little Smart," grew to 10 million by the end of September, an industry executive said Thursday.

That represents an increase of 1 million users since end-June, according to figures announced Thursday by Hong Lu, chief executive of UTStarcom Inc. (NasdaqNM:UTSI - News) , one of the major suppliers of equipment and handsets for the service.

Lu had previously predicted that the number of Xiaolingtong users would reach 12 million by the end of 2002. In a conference call with investors, he said the second and third quarters of the year typically see slower growth in subscribers than the fourth quarter.

The Xiaolingtong service is offered by two state-owned telecom operators, China Telecom Group and China Netcom Group. It competes with the standard mobile services offered by the two other state-owned companies, the parents of China Mobile (Hong Kong) Ltd. (NYSE:CHL - News) and China Unicom Ltd. .

China Telecom and China Netcom have never publicly announced their subscriber figures for Xiaolingtong.

Xiaolingtong is sometimes referred to as a "wireless cityphone" or "personal handyphone" because it doesn't allow users to roam outside their home city.

But it makes up for that deficiency by costing much less to use than mobile phones: its rates are the same as those for local phone calls.

Still, there are relatively few Xiaolingtong users compared with the enormous mass of mobile phone users. According to government statistics, China had 185 million mobile subscribers at the end of August, an increase of 40 million users since the end of last year.

Those statistics don't include Xiaolingtong subscribers. Because it uses existing local telephone infrastructure, China's regulators consider Xiaolingtong to be an extension of fixed-line phone services.

"20% to 30% of this year's total fixed-line subscriber additions in China will be on PAS systems," Lu said. In the year to August, China added 23 million fixed-line telephone subscribers to reach a total of 203 million.

Lucent Technologies Inc. (NYSE:LU - News) of the U.S., and Shenzhen-based ZTE Corp. compete with UTStarcom in the market for PAS equipment, and also resell handsets for the service made by Japan's Kyocera Corp. .

Lu said about 6 million Xiaolingtong users nationwide are on UTStarcom's network equipment, giving it a 60% market share .