The latest consensus puts China’s third-generation licenses on track for release in the first half of next year-a move that would finally open up the world’s largest wireless market to 3G technology spending.
It’s an issue that has dogged the worldwide wireless industry for years. As Japan, South Korea, Europe and now the United States gear up for 3G networks, infrastructure vendors and handset makers continue to pine for similar revenue opportunities in China. However, the Chinese government repeatedly has delayed the release of its critical 3G licenses, creating a guessing game as to when Chinese carriers will be able to launch 3G offerings.
Most agree Chinese officials want to have 3G services up and running in time for the 2008 Olympics, which are to be held in Beijing. Thus, most expect licenses will be issued either late this year or-more likely-early next year to give carriers time to build out their networks.
Billions of dollars are at stake.
“If 3G licenses are issued in late 2005 or early 2006, as we expect, there could be $3.4 billion incremental spending on 3G networks in 2006,” wrote investment banking firm UBS in a note to investors. “This will result in 16-percent growth in total wireless spending in 2006.”
UBS pointed out that Chinese spending on 3G likely would mean a drop in capital expenditures for 2G, but would nonetheless represent a major opportunity for the world’s infrastructure and handset vendors. Indeed, UBS predicted Chinese spending on equipment for 3G could total a whopping $12 billion during the first three years.
However, the situation isn’t as simple as it first appears. The Chinese government has been holding out for its homegrown TD-SCDMA standard for third-generation services. Indeed, the Chinese government already has invested more than $123 million in researching and developing TD-SCDMA. Developed by Datang Mobile and other Chinese equipment vendors, TD-SCDMA would protect Chinese firms from royalty payments to the likes of Qualcomm Inc. and others. Qualcomm holds most of the essential patents to CDMA EV-DO 3G technology and is one of the major holders of W-CDMA patents as well.
TD-SCDMA development has been somewhat rocky, but the Chinese government announced that a recent battery of tests show it is ready for prime time.
“I think the whole environment is really positive for TD-SCDMA,” said Jason Zhao, vice president of strategy for Spreadtrum Communications, a Chinese chipmaker. “The trial result was really positive.”
With an apparent green light for TD-SCDMA, equipment and handset vendors like Nokia Corp., Motorola Inc., and L.M. Ericsson must position themselves to offer TD-SCDMA products along with their other 3G offerings.
Strategies vary.
Siemens AG was early out of the gate with a 1999 teaming with Datang for TD-SCDMA technology. Other infrastructure vendors have followed a similar partnering strategy-Ericsson sided with ZTE Corp., Nortel Networks Ltd. teamed with China Putian and Alcatel Alsthom also sided with Datang.
On the handset front, Samsung Electronics Co. Ltd. has been the most aggressive of the world’s handset makers, announcing in 2003 a joint venture with Datang and Philips Semiconductors to make TD-SCDMA phones. Indeed, Samsung has said it employs more than 100 researchers on TD-SCDMA products. Those in the industry expect handset vendors like Nokia and Motorola to get into the TD-SCDMA market by using phones from Chinese original design manufacturers.
The situation for handset makers is as critical as it is for equipment vendors; iSuppli Corp. predicts the number of 3G subscribers in China will increase from 1.9 million next year to 34.5 million in 2009.
However, no one yet knows exactly how the 3G situation will play out in China. Most expect TD-SCDMA will play a major role in the development of the market, but the government likely will issue W-CDMA and perhaps EV-DO licenses as well. Further, UBS said it expects the government to reorganize the country’s major telecommunications carriers before it issues 3G licenses.
Thus, it’s unclear just how industry players should position themselves in a market clouded with uncertainty. The only really clear issue is the potential: China has more than 400 million wireless subscribers-far more than any other country in the world-and its subscriber base is expected to grow 65 percent by the end of 2010, according to Informa Telecoms & Media.
