China Unicom is spending millions of yuan to buy 500,000 CDMA (code division multiple access) handsets to ease the market's supply shortage, company executives said.
Nearly three months after China Unicom kicked off the country's first CDMA network on January 8, the company is facing bigger challenges than it ever imagined.
By the end of March, registered CDMA users reached 650,000, lagging far behind the company's target.
Out of the 650,000 users, 150,000 are new users who have subscribed over the last three months.
The 500,000 CDMA mobile phones purchased at this time are to show China Unicom's confidence and to increase its supply, said Wang Jianzhou, the company president.
After three months of trial operations, the conditions for the network are good, Wang said.
He said with customer numbers increasing, CDMA handsets are likely to become cheaper with more varieties becoming available.
CDMA used to be one of the hottest topics after its launch in January, but a short handset supply lost many potential customers.
For several weeks, only 4-5 types were available with prices ranging from 2,000-5,000 yuan (US$240-600), much higher than the GSM (global system for mobile communications) handsets that most Chinese people use today.
The handset shortage severely limited CDMA's market exploration, Wang admitted.
He said some of the licensed 19 CDMA terminal vendors have adopted a wait-and-see attitude to CDMA. Others are unprepared as they did not expect the network to be launched so early.
Wang said more varieties are coming up.
Without any price advantage, the CDMA network also faces difficulties in attracting high and mid-end users in line with Unicom's expectations.
At the same time, China Mobile, which controls most of the country's high-end mobile phone users, launched many promotional plans to retain users, especially those who spend a lot on communications.
In some provinces, China Mobile secretly cut prices and introduced promotional packages to make its services cheaper than Unicom.
In Shandong Province, people lined up outside China Mobile shops to register for a half price discount. No public announcement or advertisements were seen, and it is believed that the local operator spread the news through word of mouth to avoid punishment from the government.
With no government orders to change the price, CDMA is still keeping the high street attitude and has no plans to cut prices, the company said.
But industry experts in Beijing said the situation won't last long, if customers of CDMA keep low growth rate like the first three months, something will have to be done to save the network and its operator.
Being the country's minor mobile carrier, China Unicom is always in competition with the dominant China Mobile. Supported by better company structure and high working efficiency, China Unicom grabbed more and more market shares from zero to one fourth by the end of last year.
Heavy investment was ploughed into the CDMA network, and China Unicom bets its future on CDMA.
China Unicom is unlikely to surpass China Mobile in the GSM age, the CDMA may be its only opportunity to win, but with big risks, commented Yang Peifang, a researcher with China Academy of Telecommunications Research.
If CDMA keeps on lagging behind the development target, the central government might have to consider giving it some preferential policies, industry insiders forecast.