China 3G Spending May Not Save the Industry
By Carlo Longino, Tue Sep 21 21:45:00 GMT 2004

Or will it? Analysts are saying that Chinese carriers may not go all-out with their 3G network spending, but they might not have much choice.

China Mobile last month confirmed an analyst report that it was planning to spend $7 billion in the next 2 years on its 3G upgrades, but Reuters has construed this, along with the rise of domestic equipment producers, to mean that major infrastructure vendors "may have to settle for just a fraction of the multi-billion-dollar orders they had expected".

Analyst expectations are now that the Chinese government will issue three 3G licenses -- one to China Mobile, which will build a WCDMA network to go alongside its current GSM/GPRS network, one to China Unicom, which would upgrade its CDMA network, and a third, expected to go to one of the country's top fixed-line operators, China Netcom or China Telecom. This network would likely use the homegrown TD-SCDMA standard, either alone or alongside one of the other standards.

It's not just the use of TD-SCDMA that would be an obstacle for foreign network gear vendors, since Siemens is the only major foreign vendor to support it, though Motorola is reportedly preparing to back it as well. But Chinese suppliers like ZTE, Huawei and Datang are also willing to deeply cut their prices to win orders -- although analysts contend the companies don't have the resources to fulfill the entire upgrades on their own. But with the global shakeout in network spending, any further price drops will hurt.

While Chinese carriers may not want to jump in the deep end to upgrade their networks, they may not have much choice. China Mobile's chairman said his company was keeping an eye on European 3G launches to see how they went, so surely he's noticed that operators that have launched 3G with small areas of coverage haven't had as great initial success as those that have launched with widespread coverage -- indeed, that would explain some of the delay from many European carriers, in addition to handset shortages.

So if the incumbent carriers want to launch with anything more than small pockets of 3G coverage, they'll have to shell out. Any potential new entrants are in the same boat: they'll have to spend on constructing their own networks, with the degree of their spending dependent on domestic roaming agreements they can forge -- and the availability of TD-SCDMA dual-mode handsets.