China's Henan Province in the midst of a tariff war

Henan Mobile (HM)

HM has launched a series of promotional packages for its different service brands in the provincial capital of Zhengzhou.

· Promotional packages for GoTone users

Between December 2003 and 30 January 2004 GoTone subscribers could pay an up-front voice tariff of CNY 600 and receive an additional CNY 50 worth of voice or SMS credit every month for a one-year period. Between September 2003 and 26 May 2004 new GoTone subscribers received a discounted voice tariff of CNY 0.4 per minute for the first two minutes, CNY 0.15 per minute for outgoing calls and free incoming calls, except those from China Unicom and PHS subscribers.

· Promotional packages for Shenzhouxing prepaid users

Since January 2004 Shenzhouxing users have been able to enjoy a calling party pays (CPP) service by paying CNY 6 per month. HM sometimes offers discounted tariffs for prepaid Shenzhouxing users. For example, in February 2004 subscribers could receive an additional CNY 10 voice credit after pre-paying CNY 100. HM launched a Shenzhoudazhong prepaid card in Zhengzhou in February 2004, described in the table below:

Service	Tariff for outgoing calls in peak hours (9:00-11:00 & 18:00-20:00, Mon to Fri)	Tariff for outgoing calls in off-peak hours	Tariff for incoming calls
Shenzhoudazhong Card (Requirement of minimum monthly expense of CNY 30)	CNY 0.6/min	CNY 0.2/min	CPP except for calls from China Unicom and PHS
Shenzhouxing Prepaid	CNY 0.6/min		CNY 0.6/min
Source: Henan Mobile

• Promotional Packages for M-zone prepaid users

• Promotional Packages for data services

HM offers a number of packages for GPRS users, as shown below:

GPRS Promotional Packages

Package	Monthly fee	Credits included within monthly fee	Tariff for additional usage (CNY/KB)
Free Package	0	0	0.03
Economical Package	20	1 MB	0.01
High-end Package	100	20 MB	0.01
Business Package	200	Unlimited usage
Source: Henan Mobile Prices in CNY.

Other trends

HM once dominated Henan's mobile market and tariffs were slightly higher in Zhengzhou than in most other provincial capitals in 2003. With strong uptake of CDMA and PHS, HM began launching promotions to lower tariff rates to attract subscribers. Some subscribers that had previously turned to CDMA and PHS earlier in 2004 have now started to return to HM. At the same time, HM is aggressively pushing data services for industry clients such as those in the police force and has gained a considerable share of the corporate market.

Henan Unicom (HU)

HU has launched aggressive promotions to enhance its market position. Starting in May 2004 HU launched a new CPP service called Supermarket Card, priced at CNY 0.2 per minute and requiring a CNY 25 monthly fee. HU also still offers handset subsidies. For example, a subscriber can receive a free CDMA handset after paying a price equal to double the CDMA handset price as a pre-payment on voice fees. HU also has several monthly flat-fee packages for CDMA.

Promotional packages

Package	Monthly flat fee (including monthly fee and call-in number display fee) (CNY)	Credits within monthly fee
Packages for calls within Henan Province	660	18,000 mins (300 hours)
	500	5,000 mins (83 hours)
	299	1,500 mins (25 hours)
	133	500 mins (8.3 hours)
Long-distance Call package	120	CNY 100 worth of local calls and 100 mins of local
Local Call package	80	500 minutes outgoing local calls
Roaming Savings package	80	Roaming fee and incoming call tariff are waived within Henan Province
SMS package	50	CNY 25 worth of local calls and 500 SMS
Source: Henan Unicom

HU hopes to use voice credits and discounted tariffs to capture low-end subscribers that might otherwise have preferred to sign up with either HM or to use PHS services. Between 30 March and 30 June 2004 HU subscribers who bought one of 12 selected CDMA handsets were offered CNY 25 of free voice credits per month for two years. In addition, HU launched discounted tariff packages for prepaid GSM users in early 2004. For example, prepaid GSM users who have voice tariffs that exceed CNY 50 in a single month are offered free voice credits of CNY 20. Prepaid GSM subscribers can also enjoy monthly flat-fee packages, such as unlimited long distance calls within the province for a monthly fee of CNY 25.

Other trends

HU is facing severe competition from HM and PHS services. With the market becoming heavily saturated, HU is increasingly focusing on signing up low-end subscribers. In local markets beyond the provincial capital, HU has launched extensive promotions for low-end subscribers in order to increase market share, giving it some momentum to compete with rivals.

Henan Netcom (HN)

HN introduced PHS in second-tier cities prior to 2001 and all major cities in the province have now launched the service. Henan had nearly 700,000 PHS subscribers by year-end 2003, and two million by the middle of April 2004.

After the Chinese New Year in January, China Netcom almost doubled its 2004 new subscriber target in six provinces, including Henan, to enhance its prospects for a planned IPO in H2 2004. For example, the two major cities of Zhengzhou and Luoyang both have new subscriber targets of 500,000, while other cities are aiming to cumulatively add one million new subscribers, according to Henan Netcom.

Since China Netcom's assets in Henan province will be included in China Netcom's upcoming IPO scheduled for H2 2004, the parent company has instructed HN to achieve 70% of its 2004 subscriber growth target by the end of H1 2004. By launching aggressive promotions, HN increased its subscriber base by more than one million in Q1 2004.

Zhengzhou, the capital of Henan province, launched PHS in January 2003 and had acquired 350,000 subscribers by the end of April 2004. Since H2 2003, Zhengzhou Netcom has launched extensive promotions, including handset subsidies. For example, in April 2004 subscribers who paid an up-front voice tariff of CNY 458 received a free PHS handset priced at CNY 540.

In March 2003 Zhengzhou Netcom launched a promotional package called Campus Pioneer targeted at students, but it is actually available to all PHS subscribers. The standard PHS monthly package requires the subscriber to pay a monthly fee of CNY 30, with the tariff set at CNY 0.22 for the first three minutes and CNY 0.11 per minute thereafter, including the monthly call-in number display fee. The Campus Package waives the original CNY 30 monthly fee and instead charges a CNY 15 monthly flat fee for PHS SMS. Subscribers are not required to pay the monthly fee during the three months of school holidays every year. Voice tariffs are CPP and cost CNY 0.15 per minute for outgoing calls. Zhengzhou Netcom currently has other promotions including monthly flat-fee packages, as illustrated in the table below:

PHS Promotion Packages in Zhengzhou

Promotion packages	Monthly flat fee (CNY)	Additional voice credits (CNY)	Notes
Package 1	30	30	All calls that exceed additional voice credits are charged at standard PHS rates
Package 2	49	70
Package 3	69	130
Source: Henan Netcom

In other cities, HN launched promotional packages that have were even more competitive than those in Zhengzhou. For example, in Xuchang if subscribers pay one year of monthly fixed-line phone fees totalling CNY 216 up-front, they are offered a free PHS handset and CNY 18 of fixed-line voice credit per month for one year. Such promotions boost PHS subscriber growth and help speed up competition in the local mobile market.

PHS value-added services are developing rapidly in Henan. Users can exchange PHS SMS between most cities in Henan for just CNY 0.08 per SMS. The WiWi service, a wireless internet service over PHS, is priced at CNY 0.05 per minute. The MiMi service, or PHS C-mode service, is priced at CNY 0.02 per minute, compared to CNY 0.08 per minute in Guangzhou.