3G is the future of mobile phones but it will likely take a while before it comes to China. Zhu Shenshen profiles the foreign players who would like to speed the plough to get the technology fully operational in the country and the challenges that lie before them.

Foreign telecommunication equipment providers are still eager to connect into the world's largest wireless market despite the Chinese government delaying the issuing of third-generation mobile system licenses.

They believe the country is going to be a multi-billion-yuan market for network equipment and mobile phone manufacturers within two years.

At present, some companies, including Ericsson Inc, Nokia Oyj and Siemens AG, are extremely active in China.

Carl-Henric Svanberg, Ericsson's president and chief executive, traveled to China twice in November, visiting Guangzhou and Beijing. In all, he has come to the country four times since April.

His travels coincide with the Swedish company's commitment to China and its focus on developing third-generation, or 3G, telecommunication technology in the country.

On his latest trip, Svanberg went to Beijing to attend the Ericsson Strategy & Technology Summit.

"China is home to some of our key R&D (research and development), manufacturing and other activities," he said. "We hope that our China revenue will contribute the most among our global markets in future."

In the third quarter of this year, Ericsson's revenue reached 28 billion Swedish Kronor (US$3.82 billion).

Its China revenue accounted for 9 percent, second only to the United States worldwide.

What is more, Ericsson is very optimistic for the Chinese market when 3G moves from the laboratories to commercial sales in the country.

"Fast growing, highly competitive and an enormous telecom future," said Jan Malm, president of Ericsson China, in his description of the market. "Quite simply, it is the world's largest mobile phone market. These are the phrases I can use to describe this very exciting market for Ericsson."

According to an unidentified Ericsson China senior executive, many foreign companies have expanded their businesses in the country, aiming to grab a big share of the 3G market when it eventually launches, likely in 2005.

Their presence has put much pressure on Ericsson, one of the leading global companies in telecommunications equipment providers.

"Early birds can get a worm and that's the rule of the incoming 3G market in China," said the source.

Ambitious "birds" include such giants as Motorola Inc, Nortel Network Limited, NEC Corp, Siemens and Nokia.

All have done their utmost to promote their 3G products in the country. Senior management figures of the companies have made frequent business trips to China, they have displayed their 3G network base stations for commercial use and championed their handsets at related exhibitions.

In addition, the companies have been lobbying mobile carriers on the Chinese mainland to use their 3G products.

The "carriers" include China Mobile and China Unicom, which hold a monopoly on the country's mobile market, and fixed-line operators China Telecom and China Netcom. Both fixed-line operators are expected to get a mobile license when the 3G wave hits.

"3G is such a huge opportunity for players in the cycle that no one could pretend not to see it," said Deng Zhicheng, an analyst with the Beijing-based CCID Consulting Co Ltd.

In the third generation of telecommunications, handsets exchange voice and data quicker than current networks. This makes it possible for users to participate in video conferencing, to watch television and to play complicated games on their mobiles. At present, it is being used in Japan, South Korea and parts of Europe.

The technology is based on a new platform different from the current telecommunication standards in China. This means mobile carriers will have to buy network equipment to reconstruct their existing network. Consumers will also have to purchase 3G mobile handsets to enjoy the service.

"It is an excellent business opportunity for mobile network and handset providers because China has the world's largest mobile population," said CCID's Deng.

China's mobile phone population reached 263.47 million at the end of November. Its penetration rate was 19.5 percent. The market added, on average, 4-5 million new users each month, according to the Ministry of Information Industry.

CCID forecasts China's handset penetration rate will reach more than 33 percent in five years. More than 30 percent of handsets will be based on 3G by that time. This will create a 520-billion-yuan (US$62.65 billion) market - 250 billion yuan for network equipment and 270 billion yuan for mobile phones.

Analysts expect the 3G-related market will surpass 1 trillion yuan if value-added services based on 3G handsets are included.

However, the Ministry of Information Industry declared recently that licenses for the technology won't be released to mobile carriers earlier than 2005.

This is even later than the ministry's original plan which was expected for the end of next year.

"The later the government releases the license, the later those foreign players can get back their 3G investment in China," Deng said.

Companies, including Ericsson, Nokia, Siemens, Nortel, NEC and Alcatel Inc, have injected 10 to 15 percent of their revenue into R&D with more than 50 percent of that money being used in the area of 3G.

In September, Frank Dunn, president and chief executive of Nortel, said the Canadian giant would invest US$200 million in China within the next three years on R&D.

This came a month after Shanghai Alcatel declared that it would spend an additional US$45 million to develop 3G technology. Siemens said it would spend US$30 million to expand its local plant specifically to develop the technology.

"Those players are focusing more on China now because the 3G purchase wave in developed countries has passed," said Gu Xianli, an analyst at the Beijing-based Norson Telecom Consulting.

"Now the marketing response of 3G in the United States, Japan and European countries is lukewarm. They have positioned developing countries as their target markets and China is their profit engine in the 3G wave."

Industry insiders say such players want to occupy a substantial portion of the 3G market in China, at least more than their current share.

At the end of June this year, Ericsson held a 35.2 percent share of China's mobile equipment market, followed by Nokia (14 percent) and Siemens (10.3 percent).

When Ericsson's Svanberg first came to China in June, he talked with the central government and domestic carriers about the possibility of future cooperation with the company.

But the government held its ground on when it would launch the technology. The reason was that the Chinese market isn't yet prepared for the advanced mobile network.

"The government is aiming to support homegrown technology so we need not pay a lot in patent fees to those foreign companies as before," said analyst Gu.

Currently, three different technologies could be chosen as the standard in China by the Ministry of Information Industry. They are the European-developed Wideband Code Division Multiple Access (WCDMA), the US-developed CDMA2000 and the Time Division-Synchronous CDMA (TD-SCDMA) technology that was jointly developed by Siemens and the Beijing-based Datang Mobile Communications Equipment Co.

"The government will give homegrown telecom equipment providers time to develop their technology so it is mature enough to compete with their foreign peers," Deng said.

"For example, Datang, Huawei Technologies Co Ltd and ZTE Corp are developing their products with their own intellectual property."

Currently, millions of people in more than 100 countries have used 3G technology, mostly WCDMA and CDMA2000. China will likely be the only country to use TD-SCDMA if the technology is chosen in 2005.

(Shanghai Daily December 25, 2003)