China 3G delayed to spring 2007

More than five million Chinese users will sign up to 3G services in the first year alone

China could finally see the introduction of 3G mobile phone technology in the second quarter of next year, analysts predict.

In the meantime, some manufacturers stand to benefit from government spending on a huge trial of the country's home-grown 3G system, TD-SCDMA.

"3G licences are likely at some point in 2007, and our best guess at the moment is the second quarter," wrote Deutsche Bank analysts William Bao Bean and Michael Feng in a research summary published earlier this week. 

There will be huge demand for 3G in China, researchers believe. More than five million subscribers will sign up in the first year alone, growing to almost 85 million by the third year, according to Beijing-based Norson Telecom Consulting. 

Various sources in China's mobile phone industry have blamed the long-delayed introduction of 3G solely on the government's desire to let China's own 3G system, TD-SCDMA, start off on an equal footing with foreign-developed 3G technology.

The government apparently hopes that developing TD-SCDMA inside China will help build local expertise, and reduce royalty payments to foreign mobile technology patent holders.

However, US-based Qualcomm, which holds numerous patents in the field, has stated that it expects to collect royalties on commercial TD-SCDMA systems. 

Local mobile operators say they have conducted successful 3G trials and were ready to start 3G services, with the exception of TD-SCDMA, several months ago.

Analysts from one foreign investment banking firm describe themselves as " sick of guessing" when China's 3G licences will finally be granted.

The TD-SCDMA development process has been slower than planned, however. A final trial of TD-SCDMA is scheduled for the fourth quarter of this year, according to press reports, involving up to two million participants in five cities across eastern China.

The government is expected to subsidise equipment costs for these trials, potentially providing a revenue boost for manufacturers including ZTE, Deutsche Bank reports.

China's neighbours Korea and Japan provide an illustration of the benefits of a move to 3G. When it is introduced, 3G technology is expected to provide a boost in revenue for China's network operators and mobile phone manufacturers, as subscribers upgrade to new phones and try more expensive services.

In Japan, more than half of mobile subscribers are using 3G services which have provided an opportunity for growth in a saturated market.

A local 3G network will also provide a training ground where China's phone manufacturers can gain valuable experience as they attempt to move beyond emerging markets to compete with top tier phone makers.

Korean manufacturers Samsung and LG have accomplished a similar transformation during the past few years, based on early local adoption of advanced mobile technologies.