UPDATE 1-China says approves issuance of 3G licences

(Adds background, analyst comments)

BEIJING, Dec 31 (Reuters) - China’s state council, or cabinet, said on Wednesday it had approved the issuance of long-awaited licences for next generation (3G) mobile networks, opening the door to $41 billion in spending for equipment.

The council did not say when the licences would be issued by the Ministry of Industry of Information, but the industry minister has said it would happen by early 2009.

China has repeatedly delayed awarding the licences while it worked on the broader task of reorganising its telecoms industry, a task it began earlier this year.

As part of that reorganisation, the ministry has said China Mobile 0941.HK would be awarded a licence for a TD-SCDMA network, a standard backed by Beijing.

In addition, China Unicom 0762.HK would be awarded a licence for WCDMA and China Telecom 0728.HK for CDMA 2000.

WCDMA and CDMA 2000 are globally accepted standards, but the foreign firms that control these technologies also charge hefty royalties, something Beijing aggressively tries to avoid.

The new technology handles faster data downloads, allowing cellphone users to make video calls and watch TV programmes.

Backing the homegrown TD standard is a double-edged sword for Chinese companies who are assured more contracts for building their networks but also saddled with huge development costs for an untested network.

“China Unicom and China Telecom will see a positive reaction in terms of share price reaction,” said Tang Mingjun, a telecom analyst with Shenyin Wanguo Securities in Shanghai.

“China Mobile’s shares may lag behind,” he said.

China Mobile alone has spent billions of dollars on developing TD technology, a figure that does not include huge expenditures by firms such as ZTE Corp 0763.HK000063.SZ, China's No. 2 telecoms gear maker and Datang Telecom Technology Co 600198.SS, both big TD supporters.

“For equipment manufacturers, such as ZTE, investing in a new network will surely speed up its business, said Liu Jun, an analyst at Ping An Securities in Shenzhen.

Foreign companies such as Ericsson ERICb.ST and Nokia Siemens Networks are also waiting for part of the billions that will be doled out, but have been mostly disappointed thus far.

This contrasts with Motorola MOT.N which said earlier this month that it won a contract to upgrade part of China Telecom's CDMA infrastructure to be installed in early 2009, and Alcatel-Lucent ALUA.PA which also announced a contract from China Telecom woth $230 million.

Chinese telecom operators will spend about $41 billion on next generation (3G) mobile networks over the next two years, the industry ministry estimated earlier this year.

In addition, China has also said it will support the development of core microchips, terminals and testing equipment as network coverage is expanded. ($=6.83 yuan) (Reporting by Michael Wei; Writing by Kirby Chien; Editing by Mike Nesbit)