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Alcatel Joins Firms Upping 3G Investments in China

France's telecom player Alcatel SA said it plans to invest $145 million in China in 2003 as part of a plan to position itself for next generation 3G-based mobile communications networks, including a new 3G standard created in China.

Alcatel currently is providing around 10 percent of the mobile telecommunications equipment for its current 2G networks, and is angling for an even greater share of the deals for its planned 3G networks.

In 2002, Alcatel set up a merger with a local Chinese company and formally created Alcatel Shanghai Bell. Through that division, Alcatel is expected to focus on research for both the wideband CDMA network standard and China's own version, TD-SCDMA, or Time Division-Synchronous Code Division Multiple Access, developed by the Chinese.

But Alcatel is not the only telecom equipment provider angling for future contracts in China. Ericsson , Nortel Networks , Lucent Technologies and Siemens are all involved in trying to tap the market for China's multibillion dollar wireless equipment deals.

But it is wireless phone maker Siemens that has been driving adoption of China's TD-SCDMA standard. NTT DoCoMo and Nortel Networks have also gotten behind the China's brand of 3G. On Thursday, Nortel Networks said it is joining the Chinese mobile technology research and development trail. Nortel said it has opened a lab with Datang Mobile in Beijing, to explore the potential for trying to commercialize the TD-SCDMA standard.

And on August 11, Siements Mobile, the German telecom group's wireless arm, said it is planning to spend $68 million a year to develop China's TD-SCDMA standard. Siemens Mobile has already made investments in the Chinese 3G technology and standard over the past few years, and has said an initial rollout is likely sometime in early 2004. Before that happens, the Chinese government is expected to soon award its 3G licenses, and that may be a reason for the flurry of announcements regarding Chinese wireless research and development.

Alcatel's announcement about its new R&D efforts come just days after Japan's NTT DoCoMo said it will be setting up $5.3 million research center in Beijing to explore 4G technology in Japan and China. Back in June, Lucent said it would spend $50 million for developing 3G networks.

At Alcatel's 3G Reality Centre in China researchers are expected to conduct a variety of experiments with 3G devices, networks and applications. The Chinese 3G research center will be at the center of the company's Asia-Pacific center and will have links to Alcatel's own 3G lab in Paris.

Alcatel in 2000 setup a joint venture with Fujitsu, known as Evolium SAS. Evolium has become a leading UMTS solution to NTT DoCoMo in Japan and involved in 20 different 3G/UMTS pilot networks and pre-commercial deployments, including Orange in France. Alcatel Shanghai Bell has focused on 3G/UMTS development, but Chinese is pursuing a variety of mobile pilot projects.

In July, the Chinese Ministry of Information Industry said there are more than 234 million subscribers, making the Chinese mobile market the largest in the world. It is for that reason, that several U.S., European and Asian telecommunications companies are making cuts in a variety of areas, but not in exploring the potential of the Chinese mobile market.

One question which is somewhat of a mystery is precisely which wireless technological standards China will adopt, as those choices will go a long way to determine, which vendors have the inside track to billions in wireless telecom equipment contracts in the coming years.

While Chinese telecommunications are actively involved in reviewing their options, and are expected to review a variety of technologies, 3G mobile services are not expected to be commercially available in 2005, or later.

On August 27, Deutsche Bank issued a research report entitled "China's Wireless Sector," which asked whether 3G licenses would be issued at the same time.

"It is possible that the MII may not issue 3G licenses at the same time. To give the fixed line carriers a head start in 3G, our industry contacts suggest the government could award 3G licenses to China Netcom first, followed by China Telecom. We think all operators will get their licenses in 2004," Deutsche Bank's research said.

"Competitive pressure in the Chinese wireless space will intensify post-2004. China Telecom and China Netcom, the two expected new mobile operators, are formidable competitors, and will take significant market share from China Mobile and China Unicom -- particularly the latter. But China Mobile will remain a winner," Deutsche Bank said.

On Thursday, August 28, CLSA Asia-Pacific in its "Asia Morning Line" report said, "while the news on China Telecom and Netcom is yet unconfirmed, it still highlights the extent of regulatory risk involved in Chinese telecoms. The possibility that China will issue up to four 3G licenses in 2004 is well known, but the possibility of an asymmetrical licensing policy is a surprising angle. Although we believe this is unlikely, we have to point out that such an event will be more negative for the listed cellular companies than just issuing two new mobile licenses."