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Published 8/31/2008 11:52:00 PM - Greater China

Olympics has finally completed with splendid fireworks above the sky in Beijing.  In the meanwhile, top 4 Chinese telcos have posted their first 6 months earnings in the past week.

Both mobile carriers China Mobile and China Unicom posted above expectation results with 45% and 98% profit growth compared to same period in 2007.  On the contrary, fixed line operators China Telecom and China Netcom posted net profit decline of 4% and 5% respectively for the same period.

The first 6 months performance proved that the gap between mobile and fixed operators in China will become even wider, if further reform of the telecom market in China does not happen as soon as possible.  That was why the Chinese government has announced the restructuring of the top telecom operators in China to form 3 full licensees in the country earlier this year.

After announcement of the restructuring of Chinese telcos, the actual split and formation of the new 3 telecom operators have not officially taken place because of Beijing Olympics.

Recently we have seen significant movement from China Telecom, announcing winners for CDMA network upgrade, which they have bought from China Unicom through this restructuring process.  The over $1.5 billion first phase investments is the first move of China Telecom trying to retain their existing customers and explore new opportunities in mobile market.  China Telecom has seen subscriber decline for its fixed telephone users for the first 6 month in 2008.  That is why it is extremely active to start the network upgrade to CDMA 2000 EVDO, though the actual network transfer will only complete in October.

From China Unicom, with the sales of CDMA network, it can finally focus on its GSM network and upgrade it to the most commonly used 3G standard WCDMA.  It has a plan of approx. $15 billion in the next 3 years for 3G network construction.  However, the merger with China Netcom will potentially last for 12 months and it may bring challenges to integrate over 200,000 of China Netcom employees into their much smaller organization at China Unicom currently.

Uncertainties also remain for the giant China Mobile.  With largest mobile subscriber number and as the most profitable telecom company in the work, China Mobile may need to use home-grown TD-SCDMA as its 3G standard.  There are challenges regarding the limitation of handset availability and technology immaturity of the Chinese local standard.  Also, with very limited fixed network through its acquisition of China Railcom, China Mobile may need to fight very hard with new China Telecom and new China Unicom, who will try to bundle fixed and mobile services to most consumers.  So we have seen China Mobile’s announcement last week of building TD-SCDMA 3G network in another 28 cities in China.  It is trying to get comprehensive 3G network faster than competition, to maintain high end customers.

Therefore, telecom equipment manufacturers will see another peak period of heavy investment on 3G mobile networks in the next 3 years for a total market opportunity of over $50 billion.  That is surely good news for struggling Alcatel-Lucent and Nokia Siemens Networks.  This round, they will face stiff competition from stronger Chinese vendors Huawei and ZTE as well.

By Bryan Wang

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