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Wireless kit makers eye boost from China 3G spending

Europe's leading makers of mobile network equipment expect to hear in the coming days about plans to pour 30 billion yuan ($4.39 billion) into the next wave of telecom infrastructure in China, and they want a piece of the action.

The Chinese mobile telecom market is booming, as carriers reach deeper into rural areas and add millions of new users each month to the 600 million existing subscribers. Along with a massive restructuring that left three main operators, the Chinese government is set to award licenses for third-generation, or 3G, networks, in which the three operators are expected to invest nearly $80 billion - a golden opportunity for vendors already struggling in a global market that shows few signs of growth.

Sweden's Telefon AB L.M. Ericsson, the world's largest maker of telecom gear by sales, and a longtime vendor in China, is positioning itself to benefit from this wave of investment, as are European rivals Nokia Siemens Networks and Alcatel-Lucent. But a China-specific technology and increased competition from local rivals are complicating their ambitions.

The three operators are planning their own 3G rollouts, each using different radio technologies.

China Mobile, the world's largest operatorwith more than 400 million subscribers, chose to use a relatively new technology, developed mainly in China, called TD-SCDMA, or Time Division-Synchronous Code Division Multiple Access, to roll out its faster, modern 3G networks, the honeycomb-like system of radio base stations that make cellular phones possible.

The market is now waiting for China Mobile to award its second-phase network rollout contracts, the next step as operators reach for the 300 million subscribers expected to enter the country's mobile networks over the next five years.

Industry stalwarts such as Ericsson, NSN, and Alcatel-Lucent can't afford not to compete for China Mobile business, even if it has meant years of preparing for the new technology.

"We are married to China Mobile for the long haul," said Mats Olsson, head of Ericsson's Chinese business, in a recent Dow Jones Newswires interview."We see TD-SCDMA being deployed massively over the next few years."

China Unicom, which will implement its 3G network using the more common Wideband Code Division Multiple Access, or WCDMA, standard, is likely to get the needed government licenses in the first half of next year, ushering in additional rounds of spending. Olsson said Unicom's initial rollout could be between 75,000 and 150,000 base stations, much larger than the 40,000 TD-SCDMA stations expected to be installed with the first two phases of China Mobile's plan.

The third operator, China Telecom, is also spending billions on its 3G network, but it is using Code Division Multiple Access, or CDMA, technology, something that Ericsson and NSN don't make, but could be a boon to Alcatel-Lucent. Alcatel-Lucent Chief Executive Ben Verwaayen said last week that its CDMA position in Chinashows the company is breaking through some of the barriers in the market.

Both Ericsson and NSN say they are working with Telecom to help them plan for the likely transition to LTE, or long-term evolution, as a fourth-generation network in a few years, a leap Verwaayen believes Chinese operators will make along with other global operators.

But the big challenge for the foreign vendors has been to adapt to the new 3G technology being used by China Mobile.

Ericsson bought hardware from rival ZTE Corp. to supply an earlier test rollout of TD-SCDMA, but is now building the gear itself. The move is seen as vital in developing a strong relationship with the Chinese government, the operators' main shareholder, and in fighting off local competitors that are aggressively bidding for contracts.

"TD-SCDMA with China Mobile and WCDMA with China Unicom are two legs on the same human being," Ericsson's Olsson said."You can't do one or the other. How would that be perceived? They are both owned by the Chinese government."

NSN gets its TD-SCDMA gear from TD Tech, its joint venture with Chinese vendor Huawei Technologies Co. Alcatel-Lucent, meanwhile, works with Chinese equipment maker Datang Mobile through Alcatel Shanghai Bell, a joint venture with the Chinese government.

Zhang Zhiqiang, head of NSN's Chinese operations, said that while it helped build the networks in three of eight cities in China Mobile's first round of TD-SCDMA rollouts earlier this year, NSN has much bigger expectations for the upcoming awards, but it isn't the only vendor looking to grow in the market.

"Competition in China is fierce," Zhiqiang said."We are one of the leading suppliers in the telecommunication market in the China region and we intend to keep that position..."

Rivals ZTE and Huawei are gaining ground quickly, aggressively pricing deals that squeeze Western vendors' margins. Market watchers also say these companies are favored by the Chinese government, giving them an edge.

"We think that Huawei has the potential to become a leading vendor over the next three to five years, especially with the potential opportunity in the Chinese market...," said ABI Research mobile networks analyst Nadine Manjaro."Chinese operators plan to invest approximately $80 billion in their networks over the next three years and we believe that Huawei stands to gain about 20% of this business."

Ericsson had just over 28% of wireless infrastructure spending globally in the second quarter, while NSN had 24.7%, and Alcatel-Lucent had 9.6%. Huawei had nearly 10% of the market, nearly double what it had three years ago, according to ABI Research.

It's crucial for the world's largest equipment makers to get China right. With both NSN and Ericsson planning for zero growth in the mobile infrastructure market next year, China's bold expansion plan is a blessing.

"With the likely recession coming in the global market, it's really attractive for equipment vendors given China's huge geographic area and increasing mobile use," said Charice Wang, an analyst at research firm Ovum.

Источник: Total Telecom

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