Ericsson, NSN Brace for Chinese Price Wars

China Mobile Ltd. (NYSE: CHL) will open bidding for the third phase of its 3G TD-SCDMA network rollout in mid May, according to this South China Post report, and that could mean another round of price wars for Ericsson and Nokia Siemens Networks.

The new China Mobile tender, which is for 39,000 base stations and reported to be worth CNY 8.6 billion ($1.26 billion), could spark fierce price competition as vendors battle to up their shares from Phase II.

Eight vendors bid in Phase II, which was for 60,000 base stations. Of these, it was domestic giants Datang Mobile Communications Equipment Co. Ltd. , ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), and Huawei Technologies Co. Ltd. that secured the lion's share, according to Pyramid Research 's Telecom Insider Report -- "Capex in Asia-Pacific."

Together the Chinese vendors took 81 percent, which left just 8 percent and 5 percent for Nokia Networks and Ericsson AB (Nasdaq: ERIC) respectively. Portevio took the other 6 percent, according to the Pyramid report. Ericsson and NSN will have to join the price wars for which the Chinese vendors are renowned, to loosen the domestic stranglehold. Ericsson and Nokia will need to drop their prices "significantly," says Daniel Yu, senior analyst, Asia Pacific, Pyramid Research. However, even then he believes the increase in share will be limited.

"The breakdown will be pretty similar to Phase II, with Chinese vendors heavily favored over the foreign vendors because China is very aggressive in strengthening its entire TD-SCDMA supply chain," Yu says. Deployments for Phase III are expected to begin at the end of the year as China Mobile continues toward its rollout targets of covering 70 percent of prefecture-level cities by the end of this year and 100 percent by 2011. Prefecture-level cities are administrative areas comprising a large city center plus much of the surrounding area including other cities, towns, and rural villages.

— Catherine Haslam, Asia Editor, Light Reading

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