A cheap phone service has become a thorn in the side of the authorities and telecommunications carriers. They want to shut the outdated service down, but it still has millions of loyal users.

"We just don't dare to (shut it down)," an executive at one of the country's major telecommunications carriers told the Global Times Tuesday on condition of anonymity.

The executive was referring to the PHS (Personal Handy-phone System) service, also known as xiaolingtong.

PHS is a wireless landline system. It uses micro-cell technology and base stations to offer wireless coverage over relatively small areas.

Because the PHS service frequency band can interfere with the frequency band used by China's homegrown 3G technology, TD-SCDMA (Time Division-Synchronous Code Division Multiple Access), the Ministry of Industry and Information Technology (MIIT) announced in 2009 that it would shut down the PHS service by 2011.

However, the system is still operational, and people are still using their PHS phones.

Peak period over

According to statistics released by the MIIT earlier this month, between January and March this year, the number of PHS service users declined by 862,000 to about 11 million users.

"The future policy for shutting it down remains ambiguous, but it is expected that the number of users quitting the service will grow," said a statement from the MIIT.

It is not a secret that the service will be shut down, "so some opportunists may have registered a PHS number just to negotiate for future compensation," said the executive, noting that the company is finding it more and more difficult to persuade PHS users to migrate to other services.

In 2005, when pager services waned in the country, China Unicom paid compensation to pager users to persuade them to stop using the service.

PHS phones started to be used in China in 1998. At that time, call fees for mobile phones were much higher than they are now.

Two telecom carriers, China Telecom and China Netcom, which were unfortunately not allowed to operate a mobile phone business, decided to introduce PHS technology as the landline market was saturated and they wanted to tap into a new business opportunity.

 Kan Kaili, a professor at the economics and management school of Beijing University of Posts and Telecommunications, told the Global Times Tuesday that at the time, China Mobile and China Unicom were seeing growing use of mobile phone services, but they charged much more for them than the fees for PHS.

"But PHS is like a chicken coop, unable to bear a building on it, you might say," Kan said.

PHS has certain disadvantages. For instance, one base station can only support a limited number of users, and the coverage and accessibility are not good, said Kan.

Some users even joked that PHS phones can only be used on the balcony, and can only function as an alarm or calculator inside.

But due to the low fees, the service still became popular. By October 2006, the number of PHS phone users reached a peak of 93.41 million.

Downward trend

The golden period for PHS did not last long.

In 2008, China Unicom acquired China Netcom, and China Telecom purchased China Unicom's nationwide CDMA business and assets, in a move to tackle the dominance of China Mobile in the market.

It also enabled the two landline operators to step into the increasingly successful mobile industry.

As competition intensified, and mobile phone producers and operators continued to cut their prices, the PHS service started to see a slump in popularity.

By December 2008, its users had fallen to less than 70 million. In February 2009, the MIIT decided that by the end of 2011 telecom operators should no longer provide PHS services.

But PHS users have proved unwilling to ditch the service.

"The reason why I'm unwilling to stop using my PHS phone is that it's simple and cheap for me, and I have had all my contacts in this phone since 2006. I just don't need the fancy functions of mobile phones," said Fan Mengwei, a 56-year-old taxi driver in Shanghai.

The telecom executive noted that besides some opportunists looking for future compensation, the remaining PHS users are those who are sensitive to prices and unwilling to accept new technology, as well as those who worry about radiation, as PHS phones are believed to have less radiation than ordinary phones.

"It is difficult to please them," she said.

PHS still has millions of users, so "we can't just close the service," said the telecom executive. "But the service quality will decline, as PHS companies are leaving the market, and base stations will be shut down due to a lack of replacement parts."

China Telecom and China Unicom refused to comment on the issue, but said they stopped PHS registration a long time ago.

Zhu Min, chief engineer at the China Academy of Telecommunications Research under the MIIT, told the Global Times Tuesday that creating a time frame for shutting down PHS will not work, because there will be consumer rights disputes.

"It's a market problem. So just let the market handle it," said Kan, noting that as long as consumers are paying their bills, the government should not terminate the service.

Keeping quiet

Since the 2009 announcement, the MIIT has kept silent on the PHS issue.

"Neither the authorities nor the telecom operators have a schedule for PHS termination. We just hope, as the service quality is dropping, that users will move to other services of their own accord," said the executive.

But there are other problems posed by the service.

According to Guangdong-based Information Times newspaper, some companies have bought a PHS number registered in Beijing or Shanghai.

Since PHS is a landline number and does not require users to register with their real names, the call transfer function allows them to carry out fraudulent practices, such as pretending to be big-city firms, even if they are actually based in a small town.

A search for a PHS phone number on taobao.com, China's leading B2C e-commerce platform, reveals more than 10,000 numbers registered in big cities, and most sellers say they also offer a call transfer service.

Admitting that this is one of the loopholes of the service, the executive said neither the MIIT nor the telecom carriers want to talk about PHS anymore.