shutting down Little Smart

In her interesting new book, From Iron Fist to Invisible Hand: the Uneven Path of Telecommunications Reform in China, Irene S. Wu describes competition among bureaucracies, consumer demand, and technological innovations as drivers of telecommunications reform in China.   An interesting case study is Little Smart, a low-cost, limited-mobility wireless service that rapidly gained popularity, but which will be shut down by 2011 in favor of 3G services.

Little Smart provided a vehicle for China Telecom to offer wireless service.  Little Smart was initially approved to extend China Telecom’s wireline telephone service to rural areas.   However, Little Smart was first offered commercially in December, 1998, in Zhaoqing, a small city in Guangdong Province.  In 1999, Little Smart service was extended to two provincial capitals and other small cities.   By September, 2001, Little Smart was being offered in 300 cities and had about 5 million subscribers.   By early 2003, Little Smart was available in Beijing and other large Chinese cities.  The number of Little Smart subscribers reached 91 million in 2006.[1]

Efforts of mobile-service competitors and the Ministry of Information Industry (MII) to constrain Little Smart subscriber growth failed.   Mobile-service competitors China Mobile and Unicom complained vociferiously to state bodies that Little Smart was not authorized to provide the service it was providing.  MII repeatedly forbade Little Smart to expand service, but it did anyway.  MII subsequently ratified Little Smart expansions.   Little Smart succeeded in gaining state approval by first succeeding in gaining a large number of customers.

Little Smart grew rapidly as a relatively low-quality, low-cost service.  Its early nicknames indicated its low quality:

Weiwei ko (Hello-Hello Call, because users are always saying hello-hello), Shikengtong (Toilet Connection, to indicate the very low standard of service), and, in the city of Zhaoqing,
Duanzhousai (Duanzhou Disconnection) [its brand name there was Duanzhoutong (Duanzhou Connection)].[2]

Little Smart, however, was much cheaper than China Mobile and Unicom.  Its monthly fee and per minute rate were about half of these competitors’ rates.  In some places Little Smart offered flat-rate, unlimited calling.  In all locations Little Smart users did not have to pay for incoming calls, as did subscribers to the other mobile services.

The challenge of shutting down Little Smart has now shifted to China Telecom and China Netcom.  China Netcom was formed in 2002 from the northern 30% of China Telecom’s wireline network, plus the assets of the competing companies Netcom and Jitong.   Thus China Netcom inherited Little Smart subscribers through its descent from China Telecom.  Both China Telecom and China Netcom received 3G mobile licenses in 2008.   They have stopped investing in Little Smart and instead are focusing on building out 3G services.  But at the end of 2008, they still had a total of about 70 million Little Smart subscribers (that’s equivalent to about 7% of the Chinese population ages 15-64).

The U.S. DTV transition is an example of a centralized, state-led shutdown of an old technology, over-the-air analog television broadcasting.  As of 2005, about 15 million U.S. household received only over-the-air television (about 14% of households).[3]   The U.S. government established February 17, 2009, as the date at which full-power TV stations would cease analog broadcasts. The U.S. Congress provided $1.5 billion for the transition, mostly to subsidize purchases of set-top converter boxes. The transition date was subsequently shifted to June 12, 2009, and an additional $650 million was provided for converter box coupons and related transition activities. Managing the shutdown of over-the-air analog television service has been a top priority for the main U.S. government telecommunications agencies, the National Telecommunications and Information Administration (NTIA) and the Federal Communications Commission (FCC).

Whether Little Smart service in China will be shut down with less government involvement remains to be seen. Opportunities for increasing costs for users and degrading quality of service are much better for Little Smart than for free, over-the-air television broadcasts. Even if China Telecom and China Netcom cannot raise monthly fees and per minute rates for Little Smart, they can add a variety of additional fees that effectively raise the cost of using Little Smart service.  In addition, a variety of opportunities exist for gradually degrading the quality of the service. Such actions, along with aggressive special discounts and promotions for Little Smart subscribers to shift to China Telecom/Netcom 3G service, may be sufficient to mitigate popular outrage at shutting down Little Smart.

Shutting down operations and services in a politically feasible way is as important for a well-functioning economy as is fostering the entry of new services.   Smart economic policy considers both the problems of entry and exit.

Notes:

[1] The facts in this and the subquent paragraphs, unless otherwise noted, are from  Wu, From Iron Fist to Invisible Hand, pp. 125-132, and Jack Linchuan Qiu (2005), The Accidental Accomplishment of Little Smart: Understanding the Emergence of a Working-Class ICT, paper prepared for the ARNIC High-Level Workshop on Wireless Communication and Development, October 7-8, 2005.

[2] Qiu (2005) p. 4.

[3] For a review of the data, see Federal Communications Commission (FCC) Media Bureau Staff Report Concerning Over-the-Air Broadcast Television Viewers, MB Docket No. 04-210, Feb. 28. 2005, and FCC, Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Thirteenth Annual Report (released January 16, 2009) pp. 53-4.

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