Carl-Henric Svanberg found he could not avoid answering a question that he has encountered frequently in the past few years. The head of Swedish mobile network equipment giant Ericsson, was asked at a technology summit in Tokyo on November 15 by a CitiBank Analyst to give a forecast about when China will license the 3G (third generation) mobile telecom services.

 

The answer offered by Svanberg, chief executive officer of Ericsson, was simple and straightforward: "Next year, maybe."

 

The host of the summit quickly added with a chuckle, "the same answer every year." The audience then burst into laughter.

 

The laughter underlines a self-mockery of many audience members, including industry executives, analysts and journalists, including those from China, who have been zealously guessing the timing of 3G licensing in China.

 

Each year such guessing is proved wrong, as the Chinese Government continues to keep 3G licensing on hold.

 

But the industry is still hopelessly addicted to the guessing game as China's 3G market could unleash orders worth tens of billions of US dollars.

 

A recent report by UBS Securities predicted the 3G licensing could be further delayed, according to media reports in November.

 

Earlier, Chinese regulators have promised the country will provide 3G services during the 2008 Beijing Olympics. As 3G network deployment usually takes around 18 months, the industry has been widely anticipating that the government could award operators with the licences within months, probably in the first quarter of next year.

 

UBS in May predicted that 3G licensing could happen in the first half of next year. "The further delays" indicated in the updated UBS report suggests the guessing game will continue next year.

 

Timetable of 3G licensing

 

The crux to the delays of 3G licensing, in a large part, is that TD-SCDMA, a Chinese home-grown 3G standard is still being tested.

 

TD-SCDMA competes with WCDMA, which prevails in Europe, and CDMA 2000, which is popular in North America, Japan and the Republic of Korea.

 

All three are international standards approved by the International Telecommunication Union (ITU), an international organization within the United Nations coordinating the global telecom industry.

 

Unlike WCDMA and CDMA 2000, TD-SCDMA has yet to be put into commercial deployment.

 

The decision by the Ministry of Information Industry (MII) not to issue 3G licenses in the past few years has given TD-SCDMA's backers time to further improve the technology.

 

TD-SCDMA in the past few months has gained significant momentum. Backers of the technology said it is already fully mature.

 

The government has been testing TD-SCDMA in cities of Baoding, Qingdao and Xiamen. Now the biggest hurdle thwarting the development of TD-SCDMA is that it lacks support from major handset makers. The development of TD-SCDMA handsets has lagged behind that of the TD-SCDMA networks and system.

 

But recently a number of TD-SCDMA handsets have been provided to some selected users for what might be the last round of tests of the technology.

 

If the tests prove successful, this might help provide hints to when the government will hand out the 3G licences.

 

"There is the least likelihood (for the 3G licensing) before the government can ensure TD-SCDMA is fully capable of competing with WCDMA and CDMA2000," said Deng Zhongyuan, an analyst with Beijing-based research house Analysys International.

 

Tang Ru'an, vice-president of Datang Telecom, the major developer of TD-SCDMA, last month said 3G licensing might happen in February. His logic is that further delays could mean operators have limited time to build networks to be able to offer 3G services during the 2008 Beijing Olympics.

 

Cao Shumin, vice-dean of the China Academy of Telecommunication Research (CATR) affiliated with the MII, said major core technologies of the TD-SCDMA standard have proved mature. "And many doubts about TD-SCDMA have also been dismissed (after a slew of technology tests and trials), she said.

 

CATR has been testing TD-SCDMA on behalf of the MII.

 

Some industry observers said the government, when licensing 3G technologies, might seek to give favor to TD-SCDMA in a bid to ensure it has an upperhand over WCDMA and CDMA2000.

 

"We've heard there's an idea TD-SCDMA may be given a time advantage (over other standards), said Ericsson's Svanberg.

 

But the CEO was quick to add that his comments were based on speculation. "We have heard too much and speculated too much in the past few years," he said.

 

Rumors have been swirling that China Mobile, the bigger of the country's two cellular operators, could get a TD-SCDMA licence first. Licences based on the other two technologies could be handed out later.

 

Selecting China Mobile, the world's largest cellular operators by subscribers, could give TD-SCDMA a big competitive edge over WCDMA and CDMA 2000.

 

Prior to that, many observers in the industry had been anticipating fixed-line carrier China Telecom would adopt TD-SCDMA in exchange for a licence to offer mobile services.

 

Currently China Telecom is prohibited from offering mobile phone services, which are much more lucrative than the fixed-line telephone services.

 

But the Chinese Government's promise to keep neutral in technology adoption by operations could make the 3G licensing complicated.

 

The Chinese Government committed to technology neutrality for 3G standards in a Sino-US Joint Commission on Commerce and Trade in 2004.

 

The US Trade Representative's office said in a statement in April, ahead of Chinese President Hu Jintao's visit to the United States, that "China has agreed to ensure that telecommunications service providers will be allowed to make their own choices as to which standard to adopt, and to issue licences for all 3G standards in a technologically neutral manner."

 

China Mobile has been open in its preference for WCDMA as it can upgrade its existing network, based on GSM, a 2G technology, rather than build from scratch. GSM and WCDMA share the same core networks, which could help China Mobile save some costs if it chooses to upgrade its GSM networks to WCDMA networks.

 

Some analysts expect the US Government might seek to apply pressure on Chinese regulators on 3G licensing, which could mean the licensing process could be further delayed.

 

Yet, a big factor affecting the licensing scheme might be the government's intention to restructure the domestic telecom industry.

 

Status quo

 

Currently, only China Mobile and China Unicom are offering mobile phone services. China Telecom and China Netcom, struggling with their slowing fixed-line telephone business, are hankering for 3G licences to provide the cellular services.

 

Many industry analysts expect the government to restructure the industry by merging the top four State-owned operators to three, as part of its efforts to spur effective competition.

China Unicom, which runs cellular networks based on two different technologies, CDMA and GSM, is expected to sell one of the two networks to China Telecom and China Netcom.

 

Statistics by MII showed that China had 449 million mobile phone subscribers by October.

 

China Mobile dominates the market. Hong Kong-listed China Mobile Limited had 291 million users by October.

 

An industry restructuring could create some bigger players which could more effectively compete with China Mobile, analysts said. And 3G licensing could offer a good chance to reshuffle the industry.

 

The State-owned Assets Supervision and Administration Commission (SASAC) has repeatedly denied it could seek to split China Unicom, but said it is "working on realigning the industry."

 

(China Daily December 4, 2006)