When will China go 3G? For years it has been one of the biggest questions in mobile telecoms, offering the potential of a much-needed bright spot for a troubled industry.
Now there are signs that the big day could finally be approaching. The latest clue – an announcement by regulators that China's own 3G standard, known as TD-SCDMA, will be ready to launch in June 2005.
The announcement coincided with news that the number of mobile Chinese phone subscribers had topped 300 million.
That's more than a fifth of the world's mobile phone users and a figure that cements China's status as both the biggest and fastest growing mobile market in the world.
With authorities eager to secure a place for 'homegrown' technologies and manufacturers, the market readiness of TDSCDMA against the more established 3G standards – WCDMA, developed by Ericsson and Nokia, and Qualcomm's CDMA2000 – has been seen as pivotal to the eventual issuing of China's first 3G licenses.
Developed in cooperation with Germany's Siemens, TD-SCDMA aims to avoid foreign development costs, instead offering Chinese companies themselves potentially big returns from equipment licensing fees.
Given the scale of China's mobile market, billions of dollars in contracts are at stake. As a result when and, just as importantly, how China makes the 3G leap are decisions that have global implications.
Multinational equipment vendors such as Alcatel, Motorola and Nokia have poured tens of millions of dollars into establishing R&D centers in China, testing networks, building alliances and currying favor with the all-important government decision makers. Meanwhile Chinese manufacturers such as equipment providers Huawei and ZTE and handset producers like Bird and Haier are gaining a growing market share.
"For 2G you had a situation where the foreigners stormed in and basically took the whole market," said Dave Carini, analyst for Norson Telecom in Beijing. "That's not going to be the case with 3G."
Norson has estimated that up to a third of the mobile 3G equipment market will be taken by domestic vendors – a share that would likely grow further depending on how widely TD-SCDMA is deployed and the longer the wait for licensing drags on.
"China's not going to jump into any decision on 3G," said Carini. "The government likes to take its time and see how others fair with new ideas and new technologies."
Ultimately the key x3G decisions – when, how and, finally, who – will come down to the State Council, China's cabinet. Only then will the real deals start to be made.
"There's a lot of confusion and mixed messages about which direction China should take," said Duncan Clark, Managing Director of Beijing-based BDA Consulting. "The way in which decisions are made is not very transparent, so for the moment any talk of a roll-out schedule is really just speculation."
What is clear though, said Clark, is that there is concern over too much competition – especially given the less than glittering experiences of 3G rollouts in other markets.
Until recently, the most widely touted scenario had been an initial handout of four 3G licenses, Clark said. They would most likely go to the two main mobile operators, China Mobile and China Unicom; and the two fixed line operators, China Telecom and China Netcom – giving the latter two their first break into the mobile market. But there are now worries that four may be too many.
"Prices are already quite low and with low cost systems like PHS [the low-tech Personal Handiphone System] still taking off, the consumer is really spoilt for choice right now," Clark said. With that in mind, he said, an initial release of two licenses might be enough.
"If you look at the experience of 3G in the UK for example, what has been the real driver in signing up users has been the cheap talk plans," he said. "That won't work in China, which needs cheap talk like a hole in the head.
"Rather than more competition and more price deflation, China needs to go the other way and increase prices – but that's not likely because consumers simply won't take it."
The effect: more delays and speculation – the latest being reports that the government was considering merging the four big mobile and fixed-line operators into two.
Such a move was unlikely, said Norson's Dave Carini, given the wide range of interests at stake.
Nonetheless, he said, such reports reflect concerns about overinvestment, having four operators building 3G networks when many of the bills from 2G have yet to be paid off.
There is also the question of whether 3G will be the money-spinner that the build-up has led many to believe.
"Will there be enough people to pay for 3G? That's the big question," said BDA's Duncan Clark. "As we don't quite know what 3G is at this point it's almost unanswerable." As China's telecoms market in line with WTO commitments and the search begins for the 'killer app' of 3G, Clark said he expects more and more opportunities for alliances to develop between Chinese operators and the big multinational service providers.
"You won't see a Vodafone branded mobile service in China any time soon," Clark said, "but there are already moves to sharing content and data services across networks that will grow once 3G finally arrives."
Meanwhile all eyes are on the regulators as the wait for the big 3G announcement continues.
"There's a feeling in some quarters that China has lost the plot on 3G," said Clark. "But remember that the Europeans got it spectacularly wrong with their 3G auctions, leaving operators saddled with tens of billions in debt."
It was a bad start that China is keen to avoid repeating.