China Approves 3G LicensesChina Approves 3G Licenses

China agreed to start issuing licenses for its 3G mobile data network, but questions remain about which companies will get a slice of the estimated $41 billion in government contracts over the next two years.

For network infrastructure providers like Alcatel-Lucent, Ericsson, Motorola, and Nokia-Siemens, the Chinese market could be a bright spot in an otherwise dreary market. But the Chinese government may require the state-owned carriers to utilize domestic equipment manufacturers for the bulk of the 3G rollout. Companies like Huawei Technologies, Datang Telecom, and ZTE are not as large or experienced as the foreign competitors, but they have received the largest 3G contracts to date.

The 3G technology may be a factor as well, as China's network will include TD-SCDMA, WCDMA, and CDMA. China likely will favor the homegrown TD-SCDMA standard partly to avoid paying costly royalties, and the large China Mobile will utilize that standard. Companies like Ericsson and Motorola have embraced the standard somewhat reluctantly, but some technology companies say the government should open the market to foster competition and innovation.

The 3G rollout also is potentially good news for handset manufacturers, as the Chinese market already has more than 600 million wireless subscribers. The majority of subscribers use entry-level phones that are only capable of making calls and sending text messages, but customers increasingly are upgrading to sophisticated handsets that can surf the Internet, play multimedia, and receive e-mail. For example, In-Stat reports there are already more than 400,000 unlocked iPhones in the country, as well as countless iPhone clones.

China estimates it could have about 150 million 3G subscribers by 2010. The majority of these subscribers will be buying new handsets, which could boost cell phone manufacturers during a time when other regions are holding off on upgrading their phones because of the global economic slowdown.