China 3G hit by further delays

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China 3G hit by further delays

80 million want to buy 3G handsets, but government says no.

Mobile handset makers hoping to sell 3G phones to China's 455 million mobile phone users may be forced to wait until 2008, according to local media reports.

One recent survey showed that almost 80 million mobile users in China are ready to switch to 3G, but that the government is preventing 3G network operators from rolling out services.

Local and foreign firms including Nokia, Motorola and Sony-Ericsson could be affected by changes to China's 3G schedule. 

Nokia, the world's largest mobile phone maker, holds more than 30 percent of the Chinese handset market, and generates huge revenues from network infrastructure sales. 

China's 3G introduction has been delayed for more than a year while the government waits for the country's home-grown TD-SCDMA 3G standard to be finalised. 

Although carriers have set up test networks in several urban areas, and claim that they are ready to offer full 3G services, they cannot move forward until the government gives them 3G licences.

While past delays have been caused by technical problems with the new TD-SCDMA standard, observers believe this may no longer be the main problem holding up 3G in China.

"We believe that the delay is likely due to politics, not technology," wrote W R Hambrecht analysts in a recent report to clients. 

Many had speculated that the number of carriers will increase to four, with China Telecom and China Netcom joining incumbent operators China Mobile and China Unicom. 

"However, we believe this is a complex political issue where carriers are lobbying for their own respective interest," explained the analysts.

"Senior management members of the carriers are considered highly ranked government officials and it is therefore a very delicate issue for the Chinese government."

It is still believed possible that 3G licences could be granted this year. However, by delaying the full rollout to 2008, observers believe that the government can buy more time to sort out these internal struggles for influence.

Such a move would also give TD-SCDMA operators a chance to iron out any remaining bugs, thereby reducing the risk of negative publicity from major glitches during a high-pressure competitive launch of the untried technology.

An alternative strategy involving the issue of TD-SCDMA licences first, giving the new technology a more gentle start, is untenable, according to one government advisor.

"It is not possible for the Chinese government to issue the TD-SCDMA network licence on its own, and it is also impossible to issue the TD-SCDMA licence before the others," said Professor Tingjie Lü of the Beijing University of Posts and Telecommunications. 

"The 3G network licences must be issued together. Our leaders have already promised this to the outside world. We must issue 3G licences according to that promise. We must follow the international game rules."

Professor Lü is a member of the Ministry of Information Industry consulting committee on telecoms economics.

The US government has complained repeatedly that China is meddling in the 3G market, despite promising not to. 

The Chinese government is expected to reach a decision on its 3G licensing schedule by the start of the Chinese lunar new year holiday which falls in mid-February.
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