China 3G Licenses May Spark $41 Billion of Investment

Jan. 7 -- China issued licenses for high-speed mobile-phone services today, clearing the way for as much as $41 billion of spending on so-called third-generation networks as the government seeks to bolster the slowing economy.

The 3G licenses were granted to China Mobile Ltd., China Unicom Ltd. and China Telecom Corp., Wang Lijian, a Beijing-based spokesman for the Ministry of Industry and Information Technology, said by telephone. Services based on 3G allow faster downloads of Web pages, videos and music to handsets.

The government in China, home to more handset users than the total population of Japan, the U.K. and the U.S., projects its carriers will invest 280 billion yuan ($41 billion) to provide 3G services, bolstering an economy where growth has slowed to a five-year low. The spending would also benefit companies such as Ericsson AB and ZTE Corp., whose equipment powers the networks.

“The need to stimulate the economy is the main driver” for issuing licenses now, said Francis Cheung, head of Asian telecommunications research at CLSA Ltd. in Hong Kong. “If not for the economy, licensing could have dragged on for years.”

The decision came from the government’s top administrative body. Premier Wen Jiabao chaired a Dec. 31 meeting of the State Council, the nation’s cabinet, that gave the Ministry of Industry and Information Technology approval to issue the licenses.

Stimulate Consumption

The State Council said in a Dec. 31 statement about the decision that it expected 3G to stimulate domestic consumption. All three of China’s telephone carriers are owned by the state.

China’s economy expanded 9 percent in the third quarter of 2008, the slowest pace since 2003, as the global financial crisis eroded demand for its exports of electronics, toys and shoes. In November, the World Bank forecast the Chinese economy will grow 7.5 percent this year, the slowest in almost two decades.

Economic growth of less than 8 percent would fuel social unrest in China as the nation fails to create enough jobs for the 20 million people joining the urban workforce annually, according to economists including Societe Generale SA’s Glenn Maguire.

The government has announced a 4 trillion yuan ($585 billion) stimulus package, cut taxes and increased rebates for exports to spur growth.

Li Yizhong, head of the Ministry of Industry and Information Technology, said last month he anticipates carriers will spend 280 billion yuan on 3G networks and services in 2009 and 2010. Total spending by all companies for 3G products and services may be 2 trillion yuan over three years, the China Securities Journal reported Jan. 5, citing Chen Jinqiao, deputy chief engineer of the regulator’s telecommunications research institute.

3G Standards

China Mobile, the world’s largest wireless-phone company by market value, will operate services based on the domestically developed time division synchronous code division multiple access technology known as TD-SCDMA, Wang said. Unicom will offer services based on wideband CDMA, or W-CDMA, while China Telecom will operate CDMA2000 services, he said.

Ericsson AB, the world’s biggest maker of mobile-phone equipment, expects “a good year” in China in 2009, Chief Executive Officer Carl-Henric Svanberg said in October, citing the country’s plans to roll out 3G services.

“The biggest winners are the equipment makers,” CLSA’s Cheung said. “Foreign vendors are going to get the most contracts in dollar terms.”

China Mobile and China Unicom may each invest 100 billion yuan to build their 3G networks, while China Telecom may spend 80 billion yuan, Cheung said.

NTT DoCoMo

Faster 3G services in other markets have at the same time failed to boost the profits of the carriers that introduced them. NTT DoCoMo Inc., Japan’s biggest mobile-phone company, offered the world’s first 3G service in 2001. The Tokyo-based carrier failed to meet its target for subscriber additions in the first year after a delay in handset deliveries.

3 Group, which offers 3G services in seven markets in Europe and Australia, has failed to turn a profit since starting services in 2003, dragging down profit at parent Hutchison Whampoa, controlled by Hong Kong billionaire Li Ka-shing.

China may have 103 million 3G users by the end of 2011, about 11 percent of the country’s total of mobile-phone subscribers at that time, according to Tim Smart, Hong Kong-based regional head of telecommunications research at Macquarie Group Ltd. The nation had 633.8 million mobile-phone users at the end of November, according to government data.

(Bloomberg)