A price war between China Unicom and China Telecom spawned by the country's expected accession to the WTO has prompted government intervention.

The State Planning and Development Commission (SPDC) will join with the Ministry of Information Industry (MII) next week to regulate prices in the telecom service sector from mobile phone use to Internet access.

The two administrations last week held a national video conference in Beijing to arrange the nationwide inspection.

"Generally, competition is allowed in every industry, but we must regulate the market climate to ensure fair competition," said Yi Difei, an official with the MII's telecom administration bureau.

The government intervened after a grim price clash between the Chengdu outlets of China Unicom and China Telecom that began on November 19.

As a gesture welcoming China's WTO entry, China Unicom (Chengdu) Corp announced it would discount mobile network access charges by 500 yuan (US$60.24) per handset.

The local branch of China Telecom responded overnight cutting its charges from 800 yuan (US$96.39) to a symbolic 10 yuan (US$1.2).

"We can understand their motivation, an attempt to expand market share, but we can hardly accept these kinds of price cuts," said Yi.

He said service charges, especially those affecting mobile phone communications, should be maintained at a certain level because of huge investments made in network infrastructure.

"The expansion of user pool should be considered relative to costs. Otherwise, it will backfire eventually," said Yi.

The administration's inspection, mainly focusing on mobile phone, fixed phone and Internet access charges, will carried out in three phases ending in February.

Price cutting has been widely used by local telecom operators as limited-time bonus to attract more users.

Both China Telecom and China Unicom have also abolished mobile network access charges for users who require local phone service only in some cities.

But the discounts are being made without regard to an MII regulation released in March this year.

"Price adjustments in the telecom service sector are unavoidable because it is the most effective way to build market share," said Dong Zhiqiang, an expert with China Academy of Telecom Sciences.

Industrial experts worry about how effective government intervention can be with regard to a market economy. The role of market competition will be highlighted when China joins the World Trade Organization.

"We have experience from other industrial sectors that tells us competition benefits both customers and telecom operators," said Dong.

The telecom price war in Chengdu resulted in the addition of nearly 10,000 mobile phone subscribers within four days. However, the two local telecom rivals were forced to stop offering free network access last Wednesday.

Price adjustments are a key element used by the infant China Unicom to secure a certain market share from the mammoth China Telecom.

"If we have no right to alter prices as a market bonus, we can hardly survive in the future," said an official with China Unicom.

He said that Unicom's mobile network covers about 80 cities only while China Telecom provides mobile services nationwide.(China Daily)