China will issue 3G licenses in 2005 - report

June 18, 2004

China will have 3.4 mln 3G users by 2005, with growth predicted at a rate of over 100% per year to reach 38.93 mln by 2007, predicts Interfax in its newly released special report entitled "3G-China's Next Generation Mobile Technology". The report predicts that by 2008, when China hosts its first Olympic Games in Beijing, there will be 72.37 mln 3G users nationwide, and that the number will grow further to reach 240.75 mln by 2011.

The 73-page report, features in-depth research on China's current 3G development process, and suggests that the Chinese government will announce the issuing of 3G licenses early next year. With at least one year required for the construction of networks and service preparation, 3G services will be marketed by early 2006.

Although all six telecom operators are required to participate in 3G field trials, the Interfax report says that only four operators are expected to gain 3G licenses initially, namely China Mobile, China Unicom, China Netcom and China Telecom. China Railcom and ChinaSat will likely be granted 3G licenses in the second round of offerings. The report concludes that the government requires time to observe the development of 3G businesses, to ascertain whether a six operator-market will be too competitive and lead to investment overlap.

The Interfax report predicts China Mobile will definitely choose WCDMA while China Unicom will definitely choose CDMA2000. Of China Telecom and China Netcom, only one will use TD-SCDMA. China Netcom essentially has already given up on plans to use CDMA2000 while China Telecom seems to favor CDMA2000, the Interfax report says.

China Mobile will initially lead the race to sign up 3G users, but will be caught-up by China Unicom by 2011, predicts the Interfax report. China Unicom and China Mobile are expected to continue to lead China's mobile market, with each expected to account for about one third of China's total user base. The new operators will share the remaining one third of the user base.

Of these 3G standards, WCDMA enjoys initial favor from both mobile operators and local equipment vendors, and is expected to lead the 3G market, with about 70 to 75% of 3G users. The advanced technical features of CDMA2000 mean it will likely catch up with WCDMA later. Intellectual property rights (IPR) will be a key obstacle for the standard's development, while the global application of the standard will also be crucial. CDMA2000 is expected to have a 20% market share in China in terms of 3G users, predicts the Interfax report.

The report also notes that China's homegrown standard, TD-SCDMA, despite its uncertainties, will definitely be adopted in China and could gain a market share of 5% to 10% of 3G users in China, given the Chinese government's strong support for the standard.

In terms of hardware, the Interfax report suggests that 2005 will see high levels of investment in 3G equipment, expected to amount to USD 5.148 bln. Total investments will decrease in 2006. In terms of the different standards, the greatest amount of investment will be injected into WCDMA, with TD-SCDMA in second place. Investments in CDMA2000 equipment will be comparatively small. Market value of the 3G handset industry will also exceed RMB 500 bln (USD 60 bln) after licenses are issued in 2005, Interfax predicts. The initial price of a 3G handset is expected to be more than USD 200.