Who will benefit from 3G in China?

Q&A on latest network in the world's No. 1 mobile market

BEIJING -- China last week approved long-awaited licenses for next-generation mobile networks, whetting investor appetites with the promise of major new orders for equipment makers and revenue for network operators.

The new licenses will see dominant player China Mobile forced to build and operate a 3G network based on a home-grown experimental technology, called TD-SCDMA.

Meantime, two smaller wireless players, China Unicom and China Telecom will build networks based on the world's two most widely accepted technologies, WCDMA and CDMA 2000.

China's Ministry of Industry and Information Technology expects equipment spending on 3G networks of around $41 billion in the next two years. Such networks are already common around the globe, allowing complex services like video streaming and conferencing.

China lagged the rest of the world in building its networks, as it tried to rationalize its telecoms sector while nurturing domestic equipment makers -- often at the expense of foreign giants such as Ericsson and Alcatel Lucent.

While foreign players stand to lose a chunk of awards in the upcoming contracts, some of the biggest losers could well be Chinese consumers, who will now be faced with an unappetizing choice for their 3G services.

Following are answers to key questions about the move:

What does the move mean for China telecoms firms?

The license approvals helped to lift the stocks for all three of China's telecoms operators last week, as investors broadly welcomed the pending addition of services that could provide a major source of new revenue for all three license recipients.

Unicom and China Telecom were the biggest winners, up 9% and 6% the day the news came out, as both should see major growth potential from their introduction of 3G based on mature technologies.

Shares of China Mobile also rose but not as much as the others, as it already controls a whopping 72% of China's mobile market, limiting the potential for future growth.

Weighing equally on the stock are market concerns about the unproven nature of the technology it will use.

Will equipment makers profit equally?

The news also helped to boost global telecoms equipment makers such as Ericsson, Alcatel-Lucent, Nokia and Motorola by 3%-5%, amid hopes that they will profit from orders for new network equipment.

All the major global players gained from China's initial network build-ups, as the country -- lacking its own domestic players -- went on a multibillion-dollar spending spree to build cutting-edge fixed and wireless networks from scratch.

This time around, domestic players will benefit as well, with names such as ZTE, Datang Telecom, Wuhan Fingu Electronic Technology and Huawei receiving the lion's share of contracts.

Reflecting that perception, ZTE, China's No. 2 telecoms equipment maker, saw its shares jump 9% on the day the licences approvals were announced.

Optical fiber and cable makers, such as Jiangsu Zhongtian Technologies, Fiberhome Telecommunication Technologies and Comba Telecom Systems will also benefit from the buildout of all networks.

Where does the Chinese consumer stand?

One to lose the most is the Chinese consumer, who will suddenly be faced with an unappetizing choice of proven technology from players with spotty or no operating records, or unproven technology from an industry titan.

China is the world's largest mobile market, with more than 600 million subscribers, according to the latest government statistics. Among those, nearly three-quarters subscribe to China Mobile, with the rest spread out between networks operated by Unicom and China Telecom.

Many see China Mobile's construction of a 3G network based on unproven TD-SCDMA as an endeavor fraught with risk, as the company grapples with everything from unreliable network coverage to shoddy handsets.

At the same time, Unicom, which until recently was China's only other major wireless operator, has developed a reputation as a second-rate carrier that many may be wary to embrace.

And despite its reputation as the nation's premier fixed-line operator, China Telecom has virtually no history of operating a wireless network -- a fact that will hardly be reassuring to consumers accustomed to first-rate 2G service from China Mobile.
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