China picks up 3G pace, Mobile completes gear deals

MACAU (Reuters) - China took another step toward its long-cherished goal of operating high-speed telecoms services, with China Mobile (0941.HK) dishing out over $4 billion of deals and smaller rival Unicom (0762.HK) hoping to win a 3G license soon.

But analysts continued to warn that while the billions of dollars need to be invested under an ambitious government-orchestrated plan, carriers and investors should not expect quick returns with consumers likely to tighten spending in a worsening economy.

China Mobile, the world's largest mobile provider, is now in talks with Motorola (MOT.N) and Sony-Ericsson (6758.T) (ERICb.ST) on acquiring dual-band cell phones that can used on China's homegrown third-generation wireless standard, known as TD-SCDMA.

Chairman Wang Jianzhou said on Tuesday the firm had completed tenders for the building of the second phase of that network, sealing deals worth reportedly 30 billion yuan ($4.4 billion).

That will allow the firm to jumpstart construction of a network that is expected to begin operating in mid-2009.

"With TD-SCDMA, one headache now is that the available handsets are just not of good enough quality," Wang told Reuters in a brief interview on the sidelines of an Asian wireless telecommunications conference.

Wang said customers in trials had complained about dropped lines, a problem with handsets and not the network.

But revenue from 3G applications and content such as multimedia, music and games will not come in time to offset a sharp deceleration in consumer spending. China Mobile last month posted a 26-percent jump in third-quarter net profit but disappointed investors with a sharp drop in growth.

"To try and compensate for the slowdown in revenue growth, we're going to accelerate the pace of our investment in rural markets," Wang said.

China's Mobile's second phase of 3G expansion would expand services to 28 more cities, taking the mobile giant's coverage to 38 cities next year, Wang added.

EAT MY DUST

But the competition is coming on fast.

Unicom, the smaller of the country's two existing mobile operators, expects Beijing to speed up the issue of 3G licences, Chairman Chang Xiaobing said on Tuesday.

Meanwhile, developing a TD-SCDMA network will take time for China Mobile -- which may hurt its current two-thirds share of users -- and the market is not yet big enough to justify full commercial operations, said Marvin Lo, telecom analyst for Daiwa Securities.

"With economic conditions deteriorating... very likely consumers will tighten their spending," he said.

Wang would not say which firms had won tenders, or for how much.

ZTE Corp (0763.HK), China's No. 2 telecommunications equipment vendor, had won about 28 percent of the 30 billion yuan in orders from China Mobile, the South China Morning Post reported over the weekend.

ZTE executives declined to confirm nor deny that on Tuesday.

Other winners in the tender may include Datang Mobile, the patent and holder of the TD-SCDMA technology, together with Alcatel Shanghai, Huawei Technologies HWT.UL and Siemens Networks (SIEGn.DE), the newspaper said.

Shares of ZTE slid as much as 6.4 percent, while China Mobile dived 3.8 percent -- narrowly outperforming the benchmark Hang Seng Index's 4.5 percent fall.

China Mobile said on Tuesday it will sign a contract with Nokia (NOK1V.HE) for the Finnish firm to supply dual-band handsets next year compatible with both GSM and TD-SCDMA networks.

Wang told reporters the company was also in talks with Motorola (MOT.N) and Sony-Ericsson on the supply of dual band handsets.

Unicom chairman Chang Xiaobing told reporters that he hoped the company would get a 3G license by year-end. Unicom aims to have data services account for 50 percent of revenue in future, Chang said, but did not give a timeframe for that target.

"I suspect that license may not be issued by year-end as China Unicom is hoping for. They (Chinese government) will put a higher priority on the development of TD-SCDMA first before any 3G license could be issued," Lo argued.

(Reporting by Edwin Chan; Editing by Kim Coghill)