WIFI CRAZE: Chinese customers welcome WiFi phones because they make inexpensive or free overseas calls possible (NEWSPHOTO)

At present, China's telecom regulator prohibits phone calls made via the Internet or the browsing of Web pages via a mobile phone in wireless network-covered areas. But signs that the government will relax the restrictions have surfaced now that China Telecom Corp. Ltd. will offer a wireless fidelity (WiFi) phone to users on a pre-test basis, starting this month, before a full-scale product launch.

WiFi is the wireless version of voice over Internet protocol (VOIP), which translates conversations into packets of data that are sent over the Internet for part of their journey instead of by old, circuit-switched phone systems. A WiFi mobile lets users make inexpensive or free overseas calls and surf the Internet via wireless networks in WiFi hotspots.

The Ministry of Industry and Information, the regulator of the country's telecommunications sector, has not intervened in China Telecom's move, which industry analysts interpret as tacit approval from the government, as well as a sign of policy breakthrough on WiFi phone restrictions.

"We believe related administrations will gradually loosen their control on WiFi handsets, because the country's second largest telecom operator is offering WiFi Internet access for mobile phones," said Liu Peizhi, professor at the Beijing University of Posts and Telecommunications.

The ministry has not made a statement about its decision on the issue yet. Its current policy stipulates that mobile phones made in China should not have a WiFi mode and that overseas mobile phone makers should disable the WiFi network functions on their products to be able to sell them on the Chinese mainland. The ministry also denies phones with WiFi function access to wireless networks.

Some oversight is necessary

But the regulator should keep a close watch on WiFi phones because of the threat they pose to the traditional voice business and Internet access services, Liu said. Telecom operators that rely heavily on voice traffic for revenue will suffer a fatal blow because WiFi phones will let callers make inexpensive and free long-distance calls. Because WiFi phones provide much faster Internet access than the current second-generation GPRS (general packet radio service) phones, they also pose a threat to home-based broadband Internet access providers, such as China Telecom and China Netcom Group Corp. Ltd., both of which provide high-speed ADSL (asymmetric digital subscriber line) service, he said.

To develop the country's third-generation (3G) wireless services, the Chinese telecom industry began a third wave of restructuring in May to create three major operators out of the current six. Under the plan, China Unicom Ltd. will acquire China Netcom and sell its CDMA services to China Telecom. China Mobile, China Telecom and the new China Unicom will have licenses for both fixed-line and mobile services and develop 3G services based on three technological standards that will compete with each other. All three operators are considering making WiFi phones a new growth point in their strategies.

Network rollout

China Telecom, which began deploying its WiFi network last year, has included WiFi services in its coverage area of 21 provinces (municipalities) nationwide. The operator will deploy 12 million WiFi hotspots across the country by the end of this year and extend its WiFi coverage to all counties and cities in those provinces in three to four years, according to a Xinhua News Agency report. Because WiFi is a key strategic product for China Telecom, the operator has invested 200 million yuan ($29.4 million) in deploying WiFi hotspots, the report said.