Who will be winners in China's 3G industry? industry, industry, Who, Who, winners, winners, will, will, China, China

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As China is expected to launch the third generation mobile communication (3G) soon, its 3G-related stocks have kept rising in recent days. Experts warned that investors should be cautious and get clear who are the real winners of China's 3G industry.

At the ITU (International Telecom Union) Telecom World 2006 held recently in Hong Kong, positive remarks by operators and equipment makers and an array of new products strengthened investors' confidence in China's 3G-related companies and pushed them to buy 3G stocks in the hope of making profits.

Yi Minyu, director of telecom consulting section under the China Center for Information Industry Development, analyzed that though 3G network has obvious advantages compared with traditional 2G networks of GSM and CDMA, not all the companies in the 3G industrial chain would gain lucrative profits.

MOBILE EQUIPMENT MAKERS: BIGGEST WINNERS IN SHORT PERIOD

A complete 3G industrial chain includes operators, network equipment providers, terminal manufacturers and distributors, value-added service providers, among others.

"The first direct beneficiaries of 3G are mobile equipment and system providers," said Yi.

For telecom operators, 3G license means large sum of investment. Yi estimated that the total investment of the first phase of 3G network construction in China will be more than 100 billion yuan (12.78 billion U.S. dollars), which would turn into revenues of equipment and system providers.

For the last couple of years, telecom operators in China have not embarked on any large scale network expansion projects, to the dismay of domestic and foreign equipment makers. China's delay in issuing 3G license made the 3G equipment giants even more anxious.

"They have been lobbying hard for 3G and kept saying that China has lagged behind in mobile communications," said Yi.

The expert pointed out that such phenomenon is only typical of China. In other countries, telecom operators may not start network construction immediately when gaining 3G license unless they are sure of the profits.

TERMINAL MAKERS WILL NOT MAKE IDEAL PROFITS FROM 3G SOON

Yi held that compared with equipment providers, 3G terminal manufacturers and distributors would face more risks in the market.

He analyzed that 3G terminal manufacturing and sales will be based on business development of 3G operators, so they have little power to control the market.

The glooming prospect for 3G business will make it hard for them to realize the dream of making money in the 3G market.

Compared with 2.5 G, 3G is merely a gradual change and can not bring any revolutionary rise in business, said Yi.

TELECOM OPERATORS: SOME GAIN AND SOME LOSE

The 3G market is very complicated for telecom operators. According to Yi, fixed line operators would benefit from the new generation of mobile network if they are lucky enough to gain 3G licenses, as the growth of fixed line business has slowed down.

China Unicom, which is operating a CDMA network, will not face much pressures as it is relatively easier for the company to upgrade from the present network to CDMA2000, an international 3G standard.

China Mobile would face more risks as it is expected to adopt home-grown TD-SCDMA, which would require huge investment on the networks, said Yi, adding the prospect for TD-SCDMA is still vague.

According to the analyst, voice business will remain the major source of revenue for network operators even in the age of 3G, which has been proved by experiences of other nations. And all the 3G applications actually could be realized on 2.5 G hand phones up to date.

Data application, which is expected to be the new growth point of operators in the 3G age, did not bring corresponding benefits except occupying large amount of network capacity, said Yi.

Shanghai Unicom's CDMA 1X network, an upgraded version of CDMA, spent 75 percent of its capacity on data business which only made seven percent of the company's total telecom revenue.

"The same problem will linger in the case 3G," said Yi.

International experiences also makes people doubt the future of the market. Most of the 3G networks in Europe could only realize one sixth of the ideal transmission speed which has made telecom operators around the world cautious about 3G.