PHS Still Rolling In China
By Carlo Longino, Thu Jul 08 14:15:00 GMT 2004

Chinese consumers continue to snap up limited-mobility services, choosing value over versatility.

The Xiaolingtong, or Little Smart, service is based on the Personal Handyphone System standard that's fallen out of favor most everywhere else in the world it was used, though it is gaining in popularity in developing markets like China. Xiaolingtong offers users no-frills service at rock-bottom prices: users can make local calls and receive incoming calls for free, but can't roam from one city to another. The network is also very low-powered, and handoffs from one base station to the next can be problematic.

But the service has flourished among poor and rural users who aren't interested in cameraphones or high-speed data, and also among more affulent users who buy a Xiaolingtong phone to use alongside a cellular handset because it's so cheap. A recent study said more than a third of China Mobile users also have Xiaolingtong phones.

Some analysts worry that the success of Xiaolingtong in China doesn't bode well for advanced mobile services, though as they become cheaper, the limited services may become less attractive. Network infrastructure manufacturers are also developing no-frills equipment designed to enable carriers to turn a profit with even the lowest ARPUs.

But the example of Xiaolingtong provides a valuable lesson to not put the cart in front of the horse in emerging markets. Carriers must first address basic communications needs at low prices before trying to suck consumers in to advanced services.