Hopes rise for China 3G

Business Materials 20 November 2007 06:26 (UTC +04:00)

Shares in China's state-controlled but Hong Kong-listed fixed-line telecoms companies jumped on Monday on reports that the government might grant them mobile licences "at an early date".

The market reaction highlighted investor hopes that Beijing might finally be close to unveiling its plans for the introduction of "third generation", or 3G, wireless services in the world's largest market by subscribers.

Chinese telecoms circles have long been a hotbed of speculation about government plans for 3G and for a long-discussed restructuring of the sector that could see the number of big operators reduced from four to three.

China Telecom and China Netcom, the country's two major fixed-line operators, are eager to win mobile licences to offset an expected long-term decline in the use of traditional telephone services. China Telecom shares rose 4.6 per cent to close at HK$5.45 ($0.70) on Monday, while China Netcom's stock surged 5.5 per cent to HK$21.15 ($2.72). Hong Kong's Hang Seng index closed 0.6 per cent lower at 27460.17, the lowest since October 4.

Arun Sarin, chief executive of UK mobile phone group Vodafone, told the FT recently it hoped to take advantage of the expected restructuring to increase its Chinese presence, possibly using its $13bn stake in China Mobile as a "kitty".

A lack of policy clarity from China's telecoms industry regulators guarantees close investor attention for any apparent signal of their intentions on 3G or the restructuring.

State media quoted Xi Guohua, a vice-minister of China's Ministry of Information Industry, telling a conference at the weekend that issuing mobile licences to fixed-line operators would allow them to compete with wireless companies China Mobile and China Unicom.

The ministry would grant such licences "at an early date", the official Xinhua news agency and other media quoted Mr Xi as saying. Mr Xi's remarks appeared markedly different in tone from those of Lou Qinjian, another information industry vice-minister, who said last month that Beijing had no licence timetable and suggested that the industry had yet to come up with a compelling business case for 3G.

While delaying licence issuance, China is going ahead with large-scale trials in Beijing and other major cities of its preferred 3G technology, known as TD-SCDMA.

Analysts say the trials are intended to give TD-SCDMA developers a chance to demonstrate that the standard can compete with the European-backed WCDMA standard and the CDMA2000 standard favoured by the US. China Mobile, the dominant wireless company, is widely expected to be told to adopt TD-SCDMA and could also face stronger competition if the two 2G mobile networks used by rival China Unicom are divided between fixed-line operators Telecom and Netcom. ( FT )