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October 18, 2005 6:04 pm

Better late than never for 3G

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Expectations are growing that China will finally issue “third generation” mobile phone licences in the first half of 2006.

However, Wang Gang, chief technology officer of mobile video company Funinhand Electronic Technology, is more sceptical, having heard “next year” so many times before. But even he agrees: “3G will come in the next two or three years.”

And even though mobile video is widely seen as a core strength of 3G networks, Mr Wang is also relaxed about the likely impact on his business when operators finally do build.

“3G will be a gradual process. It will not be something that changes the world in a day,” he says.

Simon Leung, president of Motorola Asia-Pacific, concurs. “The roll-out will not be as big as people expected,” he says. “They do not need 3G in rural areas.”

Such studious reserve on the launch of 3G services in China is now widespread in telecoms circles that once buzzed with forecasts of a bonanza of demand for equipment and content.

Hou Weigui, chairman of ZTE, one of China’s leading telecom equipment vendors, says each Chinese operator will still have to pay Rmb50bn over two or three years to build a national network, but is decidedly down-beat about the prospect.

“There will be some rise in equipment sales from introduction of 3G networks. But the profitability of current 3G operations is far from ideal, so operators will be cautious,” Mr Hou says.

“[Equipment] prices are very low and, after bidding, the profits will not be great.”

Until last year it was thought Beijing would issue at least four 3G licences, pitting existing wireless operators China Mobile and China Unicom against fixed-line rivals China Telecom and China Netcom.

All four are listed in Hong Kong and the US, but are controlled by the Chinese government through its State-owned Assets Supervision and Administration Commission (Sasac).

Officials have become concerned about the impact on profits of excessive 3G competition.

One solution would be to split Unicom, the weaker of the two wireless operators, and distribute its two 2G networks between Telecom and Netcom, leaving just three 3G competitors.

Even some Unicom managers see benefits in such a plan, since the company has long struggled with the politically imposed burden of operating a national network based on Europe’s GSM standard in parallel to another based on the rival US CDMA technology.

But it is proving hard to achieve consensus on a sectoral restructuring among Sasac, the Ministry of Information Industry, the telecom sector’s official regulator, and the cabinet’s powerful National Development and Reform Commission.

With questions also unresolved about the possible role of homegrown Chinese 3G standard TD-SCDMA, some analysts say the likely result will be some kind of fudge, possibly involving a shared licence or government order for network co-operation.

Whatever course officials choose, China will surely meet its pledge to have 3G services by the 2008 Beijing Olympics, at least in the cities hosting events.

The new networks should offer a big opportunity to companies such as Funinhand that work with data-heavy services. But Mr Wang says the company sees a bright side in delay.

When 3G finally arrives, Funinhand will face strong competition from international rivals, but in the meantime it is carving out a niche with technology that allows surprisingly watch-able video over 2G networks.

“We don’t know exactly when 3G will come,” Mr Wang says. “But we have a strategy that will work whether it comes or not.”

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