China's 3G licenses could spur vendor price war

11 Feb 2009

China's Ministry of Industry and Information Technology (MIIT) kicked off the year by formally issuing the long-awaited 3G licenses to the country's three mobile carriers.

The results themselves weren't surprising. As expected, China Mobile was awarded a license to operate the world's first network using TD-SCDMA. China Unicom, which completed its merger with former fixed-line carrier China Netcom just prior to the announcement in early January, was given the go-ahead to build out a W-CDMA network. And China Telecom will upgrade its newly-acquired CDMA network to cdma2000 EV-DO. Analysts expect the first commercial services in the second quarter.

The licensing, which had been delayed for several years to allow the development of TD-SCDMA, was brought forward as part of an economic stimulus package. MIIT chief Li Yizhong has predicted 280 billion yuan ($41 billion) in direct network investment over the next two years.

That could be big news to wireless infrastructure vendors who have been hungering for heavyweight 3G supply contracts in China even before the world economy started its downward slide late last year. China Mobile and China Telecom have already announced contracts with a number of vendors for their 3G networks. That leaves China Unicom's W-CDMA network, and with Unicom expected to spend $14-15 billion over the next two years, the competition for contracts is going to be fierce.

Vendors like Nokia Siemens Networks and Ericsson - which do little in

TD-SCDMA and don't do CDMA at all - are likely to be the likeliest foreign vendors to score Unicom contracts, but Huawei and ZTE are going to fight hard for market share as well, says Ovum analyst Julien Grivolas.

'This is even more true for ZTE, as it needs a strong reference customer to leverage on in order to expand its W-CDMA business abroad and outside of its traditional territory of emerging countries,' he notes. 'So, for the two Western suppliers, together with Alcatel-Lucent, competing primarily with the main domestic vendors Huawei and ZTE for such a large business opportunity may force them to be involved in a price war.'

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