UPDATE 1-China telcos, gear makers soar after 3G approval

(Updates with comments, details)

By Parvathy Ullatil and Joanne Chiu

HONG KONG, Jan 2 (Reuters) - Shares in Chinese telecom firms surged on Friday after Beijing finally approved the issuance of licences for new mobile networks, ushering in billions of dollars in infrastructure spending and the prospect of fresh revenue streams from new 3G services.

With an estimated $41 billion in spending needed to roll out the new networks, telecommunications equipment makers, such as ZTE (0763.HK), led the gains.

Mobile service providers China Mobile (0941.HK), China Unicom (0762.HK) and China Telecom (0728.HK) also rose on expectations the new technology, allowing services such as video and mapping on mobile phones, will attract more higher spending customers.

"The investments will pay off eventually and 3G is definitely the direction they (Chinese telecom companies) have to move in," said Alex Tang, research director with Core Pacific-Yamaichi International.

"Basically the announcement removes a big element of uncertainty over when these licences will be granted."

China's state council said on Wednesday it had approved the issuance of the licences as part of sweeping restructuring of the industry. No date has been set but licences are expected early this year. [ID:nPEK179472]

Analysts said Beijing's restructuring also allowed the service providers access to the new technology at relatively low investment risk.

"The parent companies of these telecom majors will bear the responsibility for the capital expenditure while the listed companies will lease those networks. So the investment risk at the listed company level is much lower," said Tiffany Feng, telecom analyst with Guotai Junan Securities.

China Mobile (CHL.N) has already agreed to pay $146 million in annual leasing fees for 2009 to its parent China Mobile Communications.

Shares in China Mobile (0941.HK), the world's largest wireless carrier gained 2.7 percent, China Unicom rose 6.3 percent, while China Telecom, the newest entrant to China's wireless telecommunication industry, rallied 5.5 percent.

RISKS AHEAD

Still, some analysts warned the massive investment could erode the bottom-lines at major telecom companies by as much as 25 percent as consumer spending slows in a worsening economy and competition between the three service providers heats up.

"Winning market share will be the primary goal of these operators and the possibility of cut-throat price competition cannot be ruled out," said Kary Sei, analyst with ICEA Securities Asia Ltd.

Both Unicom, which merged with fixed-line player China Netcom in 2008, and China Telecom are expected to offer bundled services to take on China Mobile.