3G investment expects to fall in China

January 22, 2007

UBS lately predicts that investment in 3G in China's telecom market is expected to fall from USD 4.7 billion to USD 260 million.

Mobile handset makers hoping to sell 3G phones to China's 455 million mobile phone users may be forced to wait until 2008, according to local media reports.

One recent survey showed that almost 80 million mobile users in China are ready to switch to 3G, but that the government is preventing 3G network operators from rolling out services.

Local and foreign firms including Nokia, Motorola and Sony- Ericsson could be affected by changes to China's 3G schedule.

China's 3G introduction has been delayed for more than a year while the government waits for the country's home-grown TD- SCDMA 3G standard to be finalized.

Although carriers have set up test networks in several urban areas, and claim that they are ready to offer full 3G services, they cannot move forward until the government gives them 3G licences.

While past delays have been caused by technical problems with the new TD-SCDMA standard, observers believe this may no longer be the main problem holding up 3G in China.

"We believe that the delay is likely due to politics, not technology," wrote W R Hambrecht analysts in a recent report to clients.

Many had speculated that the number of carriers will increase to four, with China Telecom and China Netcom joining incumbent operators China Mobile and China Unicom.

"However, we believe this is a complex political issue where carriers are lobbying for their own respective interest," explained the analysts.

It is still believed possible that 3G licences could be granted this year. However, by delaying the full rollout to 2008, observers believe that the government can buy more time to sort out these internal struggles for influence.

Such a move would also give TD-SCDMA operators a chance to iron out any remaining bugs, thereby reducing the risk of negative publicity from major glitches during a high-pressure competitive launch of the untried technology.

An alternative strategy involving the issue of TD-SCDMA licences first, giving the new technology a more gentle start, is untenable, according to one government advisor.

Professor Li is a member of the Ministry of Information Industry consulting committee on telecoms economics.

The US government has complained repeatedly that China is meddling in the 3G market, despite promising not to. The Chinese government is expected to reach a decision on its 3G licensing schedule by the start of the Chinese lunar new year holiday which falls in mid-February.

China has been working on the standard for years. Indeed, TD-SCDMA is the reason for the delay of 3G licenses in China.

In 2007, probably in the first half, TD-SCDMA will see the light of day. It will flop or fly based not only on consumers' appetite for 3G services, but also on the government's decision on whether a larger or smaller telecom operator will be forced to use TD-SCDMA. Yes, forced.

No operator is eager to use it, despite the reams of technical documents lauding its technical superiority.