China Unicom's Long-Distance Leap

Calling the Right Customers

Who accounts for these huge jumps in usage? Until recently, the representative customer was someone like Johnson Zhao, a Guangzhou engineer who has friends in different parts of China and overseas, and who is not intimidated by new technology. An early adopter by nature, Zhao purchased a $6.05 VOIP calling card from China Unicom when the network was in its most nascent phase. "I remember the first time I used VOIP," he recalls. "It was 1999, and I wanted to call my friend in America. When I told him I was using VOIP, he didn't believe me -- the sound quality was that good."

Now, however, that image of the customer is changing. As the network has expanded and as IP calling cards have gained in popularity, Unicom is looking for new recruits among farmers, families, and wage earners in the cities. Against conventional wisdom, which argues that only large enterprises could be interested in such envelope-pushing technology as VOIP, Unicom officials are betting that the local market will be the key to IP's success. They believe that the ideal customer is an average resident with no special interest in technology -- just a desire to make phone calls at the best rates.

"Individuals care about price more than anything else," says Liang by way of explanation. And price is one of the strongest selling points of Unicom's version of VOIP. While a traditional phone call to the United States from Guangzhou costs approximately $1.75 per minute, Unicom's VOIP service offers rates as low as $0.45 per minute. Domestic long-distance rates over the VOIP network are similarly low: Calls to other Chinese cities cost less than $0.04 per minute.

Business customers, on the other hand, are far more concerned with voice quality and security, and Unicom does not yet have the bandwidth in place to ensure the 100% reliability of calls that such customers would demand. Even the possibility of dropped calls or fuzzy sound quality is too much for many businesses to risk, says Liang.

By focusing on individual users and their price sensitivity, Unicom hopes to capitalize on its ability to offer per-minute rates at a fraction of the cost of traditional calls. This will enable the company to continue building a large, loyal customer base of long-distance callers while it fine-tunes the voice quality of the new network. Liang expects that customer satisfaction with long-distance services will soon translate to more users signing up with Unicom for local IP service. By then, Unicom hopes to have a firm hold on the consumer market and to be ready to handle the higher quality-and-security demands of business-enterprise users.

Perhaps the strongest argument for VOIP's future success in China, however, is that using it doesn't change the way individuals are used to interacting with the telephone. For users who have phones in their homes, selection of Unicom's VOIP service is as easy as checking off a box on the monthly bill, or making a call to the customer-service center. There is no new hardware to purchase and no new interface to learn.

For residential users who aren't ready to commit to the service, or for callers without a personal phone line, the purchase of prepaid calling cards is the simple alternative. Unicom has an access number -- 17910 -- that can be dialed from any telephone on the mainland and that will immediately connect the caller to the company's IP network. In China, as in much of Asia, calling cards are an everyday part of the culture -- used for everything from mobile-phone calls to pay-phone minutes. So even though IP telephony is a potentially disruptive technology for the marketplace, it doesn't act disruptively in people's lives. Users still interact with the phone in the same way they always have -- it's just cheaper.

Unicom vs. Telecom

Despite the advantages Unicom has, a few challenges stand between it and VOIP victory. First is China Telecom, the state-owned former monopoly and still the largest telecom provider in China. Even though Unicom was first-to-market with its VOIP network, and currently boasts the most extensive IP infrastructure, China Telecom is now hot on Unicom's heels with its own VOIP buildout.

The streets of Guangzhou bear witness to the battle of the telecom giants: ripped-up concrete and constant jackhammering mark the locations where China Unicom and China Telecom are laying cables to expand their respective networks as quickly as possible in their fight for market share. Though Unicom is winning the battle in terms of network size, Telecom has a stronger brand image and a larger existing customer base. It will take all of Unicom's many flamboyant advertisements, banners, and promotions to get the word out about its better network and cheaper prices.