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China Mobile Swaps Out Datang 3G Kit

Catherine Haslam
News Analysis
Catherine Haslam
6/30/2009

China Mobile Ltd. (NYSE: CHL) is swapping out some of its 3G Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) radio access network equipment supplied by state-owned vendor Datang Mobile Communications Equipment Co. Ltd. , and replacing it with kit from Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), according to a report from Interfax China.

The reports states that ZTE equipment will replace the Datang TD-SCDMA base stations deployed by Guangzhou Mobile, while Huawei will be forklifted in at Shanghai Mobile, both of which are regional subsidiaries of China Mobile.

The report states that both vendors are supplying the replacement kit free of charge.

There appear to be two possible reasons for China Mobile's decision. First, there may be issues with the video calling capabilities and sheer physical size of Datang's base station equipment. This seems an unlikely reason for swapping out recently installed infrastructure, especially as Datang says in a recent press statement that China Mobile Chairman and CEO Wang Jianzhou is happy with the products delivered by Datang in a number of cities, including Guangzhou.

A more likely source of concern is the second cited in the report -- the inability of Datang's TD-SCDMA solutions to seamlessly migrate to TD-LTE (Time Division Duplex Long Term Evolution) without a platform upgrade.

That wouldn't suit China Mobile, which is gunning hard for a TD-LTE launch in 2010.

Both Huawei and ZTE, though, have designed their 3G TD-SCDMA base station platforms to migrate to TD-LTE on the same physical platform.

Datang, which led much of the TD-SCDMA development through standards bodies, is working on TD-LTE as well. It established a cooperation agreement with Ericsson AB (Nasdaq: ERIC) in January 2008 and has been part of China Mobile's demonstrations of the technology, most recently at this year's Mobile World Congress in February. (See Ericsson Demos LTE and TD-LTE Heads For MWC).

However, the public statements Datang made at the end of 2008 about TD-LTE envisioned commercial services in 2012, which is considerably behind China Mobile's timeline.

As Gabriel Brown, a senior analyst and mobile infrastructure specialist at Heavy Reading explains: "China Mobile needs TD-LTE to keep up with FDD [Frequency Division Duplex] LTE, so that it doesn't get sidelined."

Should the TDD flavor of LTE not be developed in parallel with FDD, China Mobile could again face the difficulty of building a self-supporting ecosystem, something it is already having to do with TD-SCDMA. (See China Mobile Fast-Tracks TD-LTE .)

If China Mobile is indeed replacing Datang's equipment, it'll be a major setback for the vendor that has been at the forefront of China's home-grown TD-SCDMA. It was the largest supplier to China Mobile for its second-round tender, taking 40 percent of an $8.6 billion project involving the deployment of 60,000 base stations by the end of 2009, according to Pyramid Research .

In statements issued recently, Datang claims to have completed the supply and construction of its base stations associated with the second tender ahead of time and is now entering into the optimization and maintenance phase. Should equipment be swapped out, the new vendors would pick up those optimization and maintenance contracts, giving them some financial reward as well as an increased market share.

ZTE's share of China Mobile's TD-SCDMA rollout is already considerable. It took 47 percent of the smaller first-round tender for 20,000 base stations, according to Pyramid analysts, while ZTE officials tell Light Reading Asia that it has secured the biggest single share of the third-round tender that was completed last week.

ZTE claims that it leads the TD-SCDMA market with a 36 percent share. It's a claim to which Brown gives credence: "ZTE is clearly the lead vendor for TD-SCDMA, and Huawei is a clear second."

Datang could not be reached for comment, while Huawei and ZTE were unable to respond immediately to Light Reading Asia's questions.

— Catherine Haslam, Asia Editor, Light Reading

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