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China Mobile 3G Contracts Awarded

ZTE and the Datang/Alcatel Shanghai Bell partnership are beneficiaries of a pilot 3G network run by China Mobile

April 10, 2007

4 Min Read
China Mobile 3G Contracts Awarded

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) and a partnership between Datang Mobile Communications Equipment Co. Ltd. and Alcatel Shanghai Bell Co. Ltd. have struck the first blows in the vendor battle to win high-profile and potentially lucrative 3G infrastructure deals in China. (See Alcatel JV Lands Deal.)

Both have successfully bid to become infrastructure suppliers to China Mobile Communications Corp. for the carrier's construction of a pilot network based on Time Division Synchronous Code Division Multiple Access (TD-SCDMA), the home-grown Chinese 3G standard. In total, about $3.1 billion is expected to be invested in the pilot program, which will include network and handset procurement, network construction, and operational costs. (See China Mobile Opens $3.1B Tender.)

Final commercial contracts have yet to be signed, however. While the carrier remains silent, ZTE has admitted in a document filed with the Hong Kong Stock Exchange that on April 7 it received a "Notice of Tender Acceptance" [ed. note: and couldn't we all use one of those?] from China Mobile confirming it had "succeeded in tendering" for the supply of wireless access infrastructure in various cities, including Beijing, Tianjin, Shenzhen, Shenyang, Qinhuangdao, and Xiamen, and the supply of core network products in a number of cities, including Beijing, Guangzhou, Xiamen, and Qinhuangdao.

ZTE added, though, that "no formal contract has been entered into between China Mobile and [ZTE] in this regard."

That didn't stop investors piling into ZTE's stock, though. By the end of Hong Kong trading Tuesday, ZTE's share price had leaped HK$5, more than 13 percent, to HK$42.35 (US$5.42).

Alcatel-Lucent (NYSE: ALU) confirmed that the partnership between its Chinese subsidiary and Datang has been chosen as a supplier of wireless access equipment, but that final contract negotiations are ongoing. (See Alcatel, Datang Get Closer.)

However, an Alcatel-Lucent spokesman says the partners are on course to secure deals worth about 30 percent of the "overall network investment."

While there is currently no official confirmation of any financial details, a Light Reading source based in China says the carrier's initial investment in network infrastructure (core and access) will be worth about 10 billion Chinese Yuan Renminbi ($1.3 billion).

That would value the Alcatel/Datang deals at about $390 million. Alcatel-Lucent declined to comment on the exact value of its subsidiary's engagement with China Mobile.

The source also notes that Datang picked up some smaller deals with other local Chinese partners, New Postcom and FiberHome Mobile Communications. Thse deals are thought to be worth about 3 percent of the overall capex.

The source adds that ZTE has landed the lion's share of the spoils, with about 54 percent of the capital outlay. That would make ZTE's deals worth about $700 million, though the vendor is not now commenting on any valuations. Only a small percentage of that will go to ZTE's partner, Ericsson AB (Nasdaq: ERIC), according to the source. (See Ericsson Bets on Chinese 3G.)

The other vendor partnerships that will gain a smaller share of the spoils, according to our source, are TD Tech Ltd. , which will get 11 percent of the spoils, and Potevio-Nokia, which will get just 2 percent.

TD Tech is a joint venture between Siemens Communications Group , which owns 51 percent, and Huawei Technologies Co. Ltd. , which holds the other 49 percent. (See Siemens, Huawei Sign JV .)

Potevio Co. Ltd. is the new name for China Putian, the company Nokia Corp. (NYSE: NOK) hooked up with in October 2005. (See Nokia Invests in China 3G.)

Nokia and Siemens have, of course, now combined their networking activities to create a huge joint venture, Nokia Networks , so making the knot of Chinese mobile relationships even more tangled. (See Nokia Siemens Opens on a Downer.)

China Mobile has one year to put the TD-SCDMA pilot network through its paces, says our source, who believes that no 3G licenses will be awarded until this process is complete.

TD-SCDMA, though, is just one of the wireless technologies set to be deployed as part of China's 3G rollout, with HSPA (high speed packet access) and CDMA evolution variants, such as EV-DO (data only), also due to be used alongside China's own 3G flavor. Vendors such as Ericsson expect China's carriers to spend more than $10 billion on 3G network rollout in the first few years after licenses are awarded, while some investment banks believe up to $75 billion could be spent in total to take 3G nationwide.

— Ray Le Maistre, International News Editor, Light Reading

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