A China Unicom official said on Wednesday the company would allege that China Mobile has been offering illegal discounts on cellular phone services to subscribers in the central province of Jiangxi who switch from China Unicom.

The Intermediate People's Court in Nanchang had agreed to hear the case as early as this month, said the official, who gave only his surname, Zhang. China Unicom is the parent of China Unicom Ltd, which is launching an initial public offering in Hong Kong and New York this month expected to raise as much as US $5.26 billion. China Unicom's Jiangxi network is not included in the overseas listing. The long anticipated listing will provide foreign investors with an alternative vehicle for tapping China's booming mobile service market.

China Telecom (Hong Kong) -- which is majority owned by China Mobile --- is the only mainland mobile phone company in which foreigners may legally invest.

China Telecom, whose shares fell about three per cent on Wednesday to HK $63.75, has enjoyed lofty valuations as the main mobile phone provider in the mainland Chinese market, which is expected to grow this year to more than 60 million subscribers. But China Unicom has converted itself over the past two years from a poorly-funded pipsqueak into a market contender that now claims roughly 12 per cent of all subscribers, sparking an increasingly competitive battle with China Mobile. China Unicom is alleging that in Jiangxi, China Mobile was offering mobile users free service connections and discounted rates if they hand over their Unicom SIM cards, Zhang said from the Jiangxi city of Nanchang.