Subject: [NEXTEL-1] ChinaRailcom and ChinaSat to start digital trunking communication service in China

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Date: Tue, 24 Jun 2003 08:55:58 -0400

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23.06.2003
10:54:00 GMT

ChinaRailcom and ChinaSat to start digital trunking communication service in China

Shanghai. (Interfax-China) - On the heels of China Telecom's Xiaolingtong mobile communications network, China Railcom and ChinaSat, two of China's six official telecom operators, will each construct 800 MHz digital trunking communications networks in China, which will subsequently become a new competitor to China Mobile and China Unicom's traditional GSM/CDMA mobile communication services. Currently, both companies have received licenses for their new telecom service from the MII (Ministry of Information Industry). China is the largest mobile communication market in the world. Currently, however, China has only two legal mobile communications carriers, China Mobile and China Unicom.

China Railcom has been allowed to construct an 800 MHz digital trunking communications network in three cities, Chongqing, Shenyang and Changchun, Xing Lihai, PR manager with China Railcom, told Interfax in an exclusive interview. The company's first digital trunking communications network project will be begun in Chongqing by the end of this month. The Chongqing project will be divided into three phases with a total investment of approximately RMB 800 mln (USD 96.6 mln). The specific schedule of projects for the other two cities remains undisclosed.

The first phase of the Chongqing project will have a capacity of 12,000 subscribers, and forecasted to be completed by the end of 2003, at which time trial network operations will be started. To date, China Railcom still has not decided whose equipment they will use. Public bidding for network equipment will begin July 1, 2003. Several foreign telecom equipment manufacturers, such as Nokia, Siemens and Motorola, will participate in the bidding, said Wang Luwei, director of Chongqing Railcom's Wireless Department, in an interview with Interfax.

ChinaSat, China's sole telecom operator specializing in satellite communications, has also been licensed to provide 800 MHz digital trunking communication services in three cities, Jinan, Nanjing and Tianjin. The digital trunking communications business has been regarded as one of two new telecom businesses that will help the company become an integrated telecom operator. The other new telecom business ChinaSat will start in near future is an IP phone service.

ChinaSat is expected to adopt Motorola's integrated Digital Enhanced Network (iDEN), currently the most popular digital trunking communications system in the world. Local press reported that Zhang Hainan, managing director of ChinaSat, and Zafirovski, COO of Motorola, had an official meeting in Beijing on May 17, 2003, to discuss cooperation in ChinaSat's construction of a 800 HMz digital trunking communications network.

ChinaSat, founded at the end of 2001, previously specialized in providing satellite communications services for China Telecom. The company has about 350 employees and recorded a sales revenue of about RMB 800 mln (USD 96.6 mln) last year. Even though ChinaSat faces little competitions in its traditional satellite communications business, the company wants to become an integrated telecom operator in future.

Shanghai-listed Unicom Guomai, the value-added service arm of China Unicom, has already set up an iDEN network in Shanghai before China Railcom and ChinaSat announced their plans. The network, comprising of 40 base stations and several SMCs, covering Shanghai's whole urban and rural areas, has been on a trial operational period since November 25, 2002. As of April 2003, the number of Unicom Guomai's digital trunking communication subscribers totaled 2,000, as Interfax previously reported.

Wang Jiahua, marketing manager of Unicom Guomai, disclosed that their digital trunking communications business was not running as well as they had expected in the past several months. There has not been a large increase in the number of total subscribers. Facing strong competition from China Mobile and China Unicom's nationwide GSM and CDMA networks, Unicom Guomai has discovered it cannot nurture a nationwide digital trunking communication industry chain.

Currently, Unicom Guomai has changed its market promotion strategy and is looking for strategic collaboration partners in China's logistics, express, public traffic industry, and ERP/CRM software industry, which are the main potential corporate subscribers of the company's iDEN system. They will jointly promote digital trunking communications services as a new mobile communications alternative in China, in order to develop a new mobile communication market, and will share the prospective profits in future.

Though China Railcom and ChinaSat have entered into the digital trunking communications service market, Wang furthered that China's fixed-line telephone service market remains firmly dominated by China Telecom and China Netcom. Therefore, it is natural that smaller domestic telecom operators will squeeze into the rapidly developing mobile communications market with peripheral technologies for the sake of surviving. Viewed from another perspective, MII will also encourage them to find new market opportunities, in order to cultivate a competing pattern in China's telecom industry.

However, industrial experts are not optimistic about the future of China Railcom and ChinaSat's digital trunking communications networks. First of all, the construction of a digital trunking communications network requires billions in investment, which is a problem for them both. Secondly, unlike China Telecom's prosperous Xiaolingtong mobile communications service, China Railcom and ChinaSat's digital trunking communication service may not be able to be as cheap as China Telecom's Xiaolingtong, because they both are constructing their new networks from ground zero. Thirdly, they will face a series of network interconnections with other telecom operators in the future, including China Mobile, China Unicom and China Telecom, in order to attract more subscribers. Last but not least, digital trunking communications technology does not concord with the developing trend of mobile communications technologies', such as 3G.

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