Chinese 3G: Open to All?

Wideband Code Division Multiple Access (W-CDMA) is set to take a major role in China’s move to third-generation wireless technology, when 3G licenses are awarded by the government later this year, according to analysts at Lehman Brothers.

The W-CDMA air interface is part of the universal mobile telecommunications standard (UMTS), which has already been adopted as the European 3G standard. Used with existing Global System for Mobile Communications (GSM) core networks, W-CDMA-compliant handsets and base stations can increase wireless data transfer rates to a maximum of 2 Mbit/s (that's the theory, anyway).

The investment bank believes the Chinese government may opt for a split of two W-CDMA and two CDMA2000 contracts, rather than favoring a CDMA2000 majority, as was originally anticipated.

Four licences are expected to be awarded later this year, most likely to China Mobile Communications Corp., China Netcom Corp. Ltd., China Telecommunications Corp. (NYSE: CHA), and China Unicom Ltd.

Lehman Brothers has made its assumptions following recent talks with Chinese government and industry officials. Analyst Alan Hellawell sees a 60 percent chance of the government awarding a combination of two CDMA2000 and two W-CDMA licences. He adds that there is also a greater likelihood of one CDMA 2000 and three W-CDMA licences being presented, rather than one W-CDMA and three CDMA2000 contracts.

“We believe local interest (ranging from W-CDMA players such as Huawei Technologies Co. Ltd. and UTStarcom Inc. (Nasdaq: UTSI); in addition to members of the TD-SCDMA Forum) will find common interest with foreign W-CDMA equipment providers to push for an even 2-and-2 split,” writes Hellawell.

If the predictions prove true, global vendors will be licking their lips at the prospect of competing in the world’s largest wireless subscriber market. Qualcomm Inc. (Nasdaq: QCOM) has already been busy schmoozing with China Telecommunications Corp and China Netcom in an attempt to promote CDMA2000 as the next-generation wide-area wireless technology of choice (see Qualcomm Courts Chinese 3G); but the company also stands to gain financially from the rollout of W-CDMA networks, as it is the owner of essential CDMA patents -- which it licences to great effect (see Qualcomm Posts Record Q1).

Siemens AG (NYSE: SI; Frankfurt: SIE) would also benefit from its early work with Datang Mobile Communications Equipment Co. Ltd. in developing TD-SCDMA equipment (see Siemens Prepares for China Deal). Other vendors that would likely win significant business from W-CDMA network infrastructure contracts include Nokia Corp. (NYSE: NOK), Nortel Networks Corp. (NYSE/Toronto: NT), and LM Ericsson (Nasdaq: ERICY).

Given recent gloomy announcements (see Ericsson: Market Still Waning, More Finns Finished, and Nokia Readies for Huge Loss), they would certainly welcome such cheer.

— Justin Springham, Senior Editor, Europe, Unstrung

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