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Chinese 3G Faces Further Delay

Global infrastructure vendors hoping to win a slice of the lucrative Chinese 3G market have been dealt a blow by reports that the Chinese government could again delay the issue of licenses, with 2005 now touted as a possible award date.

With over 225 million mobile users and four million new subscribers added every month, China is the largest single cellular market in the world and a potential hotbed of 3G activity.

According to the AFX-Asia newswire, however, a final decision on the choice of 3G technology may not be taken in the next twelve months. A report today states that, although the Chinese government has concluded the first stage of 3G testing, it will now take another year to conduct field tests.

“We have to be very cautious. It is still premature to say whether the government will issue 3G licenses next year or not,” an anonymous official with China’s Ministry of Information Industry (MII) told the news agency. “We will start field tests very soon. It is expected that the tests may last for about a year.”

The exact reasons for the delay remain unclear, but analysts suggest that the government may want to devote more time to the development of the local Time-Division Synchronous Code Division Multiple Access (TD-SCDMA) technology.

Developed by the Chinese Academy of Telecommunications Technology (CATT), TD-SCDMA combines older Time-Division Multiple Access (TDMA) with Time-Division Duplexing (TDD) techniques of broadcasting over a single chunk of spectrum rather than the normal two bands.

The government is touting the alleged benefits of this new technology over established rival 3G standards such as Wideband-CDMA and CDMA2000 (see Chinese 3G: Open to All? and W-CDMA: China's No. 1 Son?).

“It is possible that a delay is intended to give more development time to local technologies in order to allow them to catch up with international standards,” notes Stuart Jeffrey of Lehman Brothers.

Whatever the reason, any further setback in the Chinese 3G saga looks set to affect the long-term outlook for infrastructure vendors worldwide.

“If 3G licensing is delayed then it clearly has potentially negative implications to the top-line outlook for international equipment vendors -- most notably Ericsson, but also Qualcomm, Motorola, Nokia, Lucent, Nortel, Alcatel, and Siemens,” adds Jeffrey. “It does limit the potential for revenue upside in 2004 and 2005. With most stock prices requiring better visibility on top-line growth to advance further, this development is clearly likely to have a negative impact on sentiment.”

The rollout of next-generation 3G services has already suffered from severe delays in Europe. Tier 1 carriers Vodafone Group plc (NYSE: VOD) and mmO2 plc remain reluctant to specify launch dates for the technology, and struggling Hutchison 3G Ltd. is the only high-profile player to have commercially deployed services (see Euro Carriers: 3G's Not Ready and Hutch UK Clings to Network).

— Justin Springham, Senior Editor, Europe, Unstrung

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