Global Vendors to Rule China?

Global infrastructure vendors are expected to secure the majority of China’s potentially lucrative third-generation network contracts, despite strong support for local vendors in national trials next month.

Third-gen field trials from six carriers -- China Mobile Communications Corp., China Netcom Corp. Ltd., China Telecommunications Corp. (NYSE: CHA), China Unicom Ltd., China Satcom, and China Railcom -- are due to commence in February, involving at least twelve vendors.

China currently has over 270 million mobile users and adds around four million new subscribers a month, making it the largest single cellular market in the world. With Chinese ministry forecasts predicting a turnover of RMB 590 billion (US$71.3 billion) in 3G system equipment sales during the first six years of commercial operation, network infrastructure suppliers are eager to grab a slice of the action.

Although local Chinese vendors such as Huawei Technologies Co. Ltd. and ZTE Corp. boast the largest number of planned trial deployments of any equipment supplier, analysts expect the larger players to dominate the market once commercial licenses are awarded.

“Local vendors are being given solid support from operators and the government, but overseas vendors remain well placed to capture the majority of contract awards,” notes a Lehman Brothers report. “We believe that the market share given out in trial networks only reflects the support given to local vendors to help them advance their technological capabilities in advance of service launches. Commercial market shares are likely to swing more in favor of international vendors.”

Lehman Brothers forecasts that local vendors may be able to capture a commercial market share of “around 30 percent,” claiming that “international vendors, especially Ericsson, Nokia, Nortel and Siemens, are substantially more experienced than local Chinese vendors due to their EU W-CDMA [European Wideband-Code Division Multiple Access] launches which, combined with higher economies of scale, should also make them cost competitive.”

The trials are expected to last between nine and twelve months, strengthening recent analyst belief that licenses will not be awarded until the first half of 2005 (see Chinese 3G Faces Further Delay).

As expected, three technologies are on show -- W-CDMA, CDMA2000, and China’s homegrown Time-Division Synchronous CDMA standard (TD-SCDMA) (see Chinese 3G: Open to All?).

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, the theory goes that W-CDMA-compliant handsets and base stations can increase wireless data transfer rates to as much as 2 Mbit/s.

CDMA2000 technology is a packet-based extension to CDMA networks that can theoretically support data rates of 144 kbit/s.

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.

China Mobile, China Netcom, and China Railcom are trialing W-CDMA networks; China Unicom and China Satcom will test CDMA2000 technology. China Telecom is to test both standards. Surprisingly, all six operators will trial the nascent TD-SCDMA flavor.

Despite the range of technologies on trial, Lehman Brothers concurs with previous speculation that the W-CDMA standard will dominate China’s 3G market (see W-CDMA: China's No. 1 Son?).

“We still expect to see three W-CDMA licenses and one CDMA2000 license... TD-SCDMA will serve at the outset as merely a complementary technology... We expect TD-SCDMA to be bundled with W-CDMA licenses.”

— Justin Springham, Senior Editor, Europe, Unstrung