But does this mean nationwide 3G is imminent?

Earlier this month, the China Ministry of Industry and Information (MII), the regulator of China's communication industry, announced a long-awaited restructuring of the fixed and mobile communication carriers in China.

The restructuring, which requires China Unicom to spin off its CDMA2000 network to China Telecom and to merge its GSM/GPRS operation with China Netcom, conforms to the most-likely scenario postulated by iSuppli  during the past 18 months.

Furthermore, the Chinese government announced personnel changes for four existing state-owned carriers on Jun. 23. Wang Jianzhou will remain in place as chairman and president of China Mobile. Zhang Chunjiang, former general manager of China Netcom, will be named vice president of China Mobile. The chairman of China Telecom, Wang Xiaochu, will remain in his position. The former chairman of China Unicom will be in charge of a preparatory working group for the new China Unicom.

Meanwhile, MII encouraged China Mobile to acquire fixed-line operator China Tietong Telecommunications Corporation. MII also urged fixed-line operator China Telecom to purchase the nationwide CDMA networks of China Netcom and China Unicom. Furthermore, China Telecom will combine with the basic telecom services unit of China Satcom.

After the dust settles
After the reorganization, all three remaining carriers - China Mobile, China Telecom and New China Unicom - will offer both fixed-line and mobile wireless services. According to the MII, the government will issue 3G licenses after the restructuring. iSuppli believes that implementing these service offerings will take six months to complete, due to personnel adjustments and asset disposals.

As for 3G license issuance, iSuppli maintains that China Mobile will obtain one license to deploy 3G networks based on a home-grown technology: TD-SCDMA. With the arrival of CDMA networks from China Unicom, China Telecom will adopt CDMA2000 1X EV-DO technology. The new China Unicom will deploy WCDMA and HSDPA networks in China.

However, iSuppli does not expect that carriers will build up nationwide 3G networks in the short-term after acquiring 3G licenses for three reasons.

First, the level of investment required is too high. Second, there is a lack of host applications that support 3G network operation. Third, the price of both 3G-handset and service fees will be too high for consumers.

Consequently, iSuppli expects that carriers will upgrade existing nationwide GSM/GPRS networks to EDGE during the near term.

China Mobile has been deploying EDGE networks in developed areas since late 2007. The carrier will operate TD-SCDMA networks in about 30 cities in 2008. In the future, the operators will offer dual-mode EDGE/TD-SCDMA services. In 2010, new China Unicom will begin to deploy WCDMA/HSDPA networks step-by-step. Meanwhile, the new China Unicom also will upgrade its GSM/GPRS networks to EDGE.

Figure 1 presents a flow chart of the upcoming restructuring changes in the telecommunications industry in China.

Figure 1: Telecommunications restructuring in China

An easy upgrade
China Telecom's easiest path is to upgrade its existing CDMA2000 1X networks to CDMA2000 EV-DO. However, the carrier also faces challenges. China Telecom needs to convert its existing PHS users to CDMA. However, this task will not be easy.

It's good news for the home-grown TD-SCDMA technology that China Mobile must adopt it as a major 3G standard. Without support from China Mobile, the world's largest wireless service operator, TD-SCDMA would be ejected from the market very soon.

So far, iSuppli doesn't see any fatal technical flaws that would obstruct the development of TD-SCDMA. Using multicarrier and N-Frequency technology, TD-HSDPA/HSUPA is expected to support 8.4 Mbps peak downlinks and 6.6 Mbps uplinks in 2009.

FMC development
During the coming years, development of fixed-mobile convergence (FMC) services will speed up in China thanks to the restructuring. Carriers plan to add 7,000 hotspots in China in 2008. EDGE and Wi-Fi dual-mode handsets may become new hot selling products in the future. In the past, regulators forbade selling handsets with Wi-Fi features in China.

Following the restructuring, China Mobile will face one more competitor besides China Unicom: China Telecom. This will help to break the monopoly of China Mobile, which accounts for more than 70% of total subscribers in China. Mobile infrastructure suppliers such as Ericsson, Huawei and ZTE also will benefit. Due to the increasing investment in CDMA networks by China Telecom, Qualcomm's business will keep growing in China.

iSuppli predicts that growth in China's wireless subscriber rolls will continue for the next five years, driven by reductions in service fees and handset prices. Subscriber gains are forecast to surpass 400 million during the next five years. By 2012, China's wireless penetration will reach 71%. iSuppli forecasts that domestic handset shipments will amount to 350 million units in 2012, driven by the replacement and first-time buyer markets.

Wang is senior manager for China Research at the market-research firm iSuppli.