February 16, 2006

Telecom Companies Look to China for 3G Boost

BARCELONA/SHANGHAI -- China's long march to third generation mobile phone services could be nearing an end, with the roll-out of new 3G licences seen this year as Beijing prepares to set up systems in time for the 2008 Olympics.

Participants at the 3GSM mobile trade fair in Barcelona this week were buzzing with the likelihood that China will issue 3G licenses as soon as the first half of this year, amid increasing signs of movement from Beijing.

Equipment vendors such as Siemens, Ericsson, Motorola and Nokia are eagerly awaiting the development, which is expected to unleash up to $12 billion in spending on new equipment.

Siemens and Nokia executives told Reuters they expected a decision by June.

Many have cited the 2008 Beijing Olympics as a key time constraint, since China would like to have cutting-edge mobile systems in place for the global event it hopes will showcase its arrival onto the world stage.

"I would put my money on this year," said analyst Edward Fung at Kim Eng Securities, although he added that China has been unpredictable on the subject.

Siemens told Reuters it should make at least 1 billion euros ($1.2 billion) as operators scramble to roll out networks for the Olympics and beyond.

The German conglomerate is betting on homegrown Chinese standard TD-SCDMA, which received a boost last month when the official Xinhua news agency said Beijing would build a complete stand-alone network based on the technology.

Most industry watchers believe China will build networks based on the world's two most popular 3G standards, the WCDMA standard popular in Europe and CDMA 2000, backed by U.S. giant Qualcomm Inc.

But TD-SCDMA's status was less certain, with some guessing the largely untested technology might be used more for support rather than as a stand-alone system.


Trumpeting their position, the TD-SCDMA Industry Alliance, whose members include most major Chinese players, unveiled a roadmap in Barcelona to show how the technology would develop.

The alliance said it is conducting a dress rehearsal for a commercial launch, expected to be ready by year-end.

It is confident Beijing will approve its standard, and foreign firms tend to agree, as most major players have formed alliances with Chinese operators to support the technology.

Siemens has co-invested around 170 million euros to help develop the standard, and Nokia is co-investing $111 million. Most other major firms have also jumped on the TD-SCDMA bandwagon, including Motorola, Ericsson, Nortel Networks, Alcatel and Lucent Technologies.

The mobile community is banking on Chinese orders for 3G networking equipment and handsets to help dampen global prices as China, the world's biggest mobile market, brings its nearly 400 million subscribers to the table.

So far, less than 10 percent of the world's more than 2 billion mobile phone users have switched to 3G -- despite years of hype about its multimedia possibilities and massive investments in licenses and networks -- with many put off in the past by expensive, bulky handsets and poor battery life.

The price gap between a 2G and a 3G phone is now around $40.

"We want to make 3G handsets cheaper. After China's participation, prices will come down," Wang Jianzhou, chief executive of dominant mobile carrier China Mobile (Hong Kong) Ltd, told Reuters at 3GSM.

Struggling Lucent Technologies also hopes a new 3G market in China will help revive its fortunes. Strategy chief John Leonard told Reuters he believed CMDA 2000, WCDMA and TD-SCDMA would all get licenses. The only question, he said, was who, if anyone, would be awarded a fourth license.

($1=.8395 Euro)

(Additional reporting by Tarmo Virki and Santosh Menon in Barcelona)