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Booming China mobile market sparks gold rush

SINGAPORE (AP) – China’s mobile phone market is booming amid a slowdown in the rest of the wireless world, and foreign companies are eager to get a piece of the action.

American, European and Asian businesses hope to strike it rich if China joins the World Trade Organization, as expected this year. But some of them may instead discover fool’s gold because of governmental hurdles.

China’s mobile-phone market today is largely untapped. Although more than 110 million people use mobile phones in China, that’s still less than 10 percent of the population.



Many analysts believe use will quadruple by 2004, and they expect China to surpass the United States this year as the world’s largest market of mobile-phone subscribers.

Furthermore, China’s economy is still strong, so the country will have customers regardless of market troubles elsewhere, said Bertrand Bidaud, Asia-Pacific telecommunications director for Gartner, a U.S.-based research firm.



”China” was clearly the top buzzword at this year’s CommunicAsia, a weeklong trade fair in Singapore last month.

”If you listen carefully, you can almost hear an incredible sucking sound from China,” said CommunicAsia participant Geoff Johnson, Gartner’s research director.

If China wins entry into the WTO, Beijing promises to open its state-run economy and gradually let foreigners own up to half of ventures for Internet access, e-mail and other telecom services.

Until then, telecoms operators are ”waiting at the gates,” said Alistair Scott, head of Merrill Lynch’s Asian telecoms research.

Currently, foreigners are generally prohibited from offering or investing in telecom services in China.

Although some U.S. companies squeezed in with complex joint ventures in the early 1990s, they got burned when regulators in 1998 abruptly banned foreign investment with China Unicom, one of the two local mobile operators.

China refunded most of the $1.4 billion invested by more than 40 companies, but foreigners lost time and money setting up the deals.

Analysts say WTO entry will make deals somewhat more predictable.

Even so, Scott said, China does not have a judicial system capable of protecting investors. He said companies might be disappointed when things don’t change overnight.

Doing business in China requires a local partner, and the government has a majority stake in both local mobile operators.

Only AT&T Corp. has succeeded in setting up something – a small, $25 million joint venture to offer high-speed Internet services in Shanghai.

AT&T got the deal after eight years of pushing, said Ted Dean, managing director of BDA, a Beijing-based telecom consultancy.

”It’s a tough market,” Dean said. ”You can’t just waltz in.”

Instead of providing services, some companies have entered the market by selling wireless infrastructure.

Canada’s Nortel Networks Ltd. recently won a $270 million deal to provide switching, radio base stations and transmission equipment for mobile communications to China Unicom, which is trying to introduce high-speed wireless Internet services across China.

Motorola Inc. has contracts totaling $34.4 million to supply cellular infrastructure to China Mobile, China’s other local mobile operator. And Sweden’s LM Ericsson received contracts valued at $850 million over three years to provide network equipment to China’s Jiangsu province.

Foreign companies dominate China’s market for mobile handsets – a fact that further whets the appetites of foreign service providers. U.S.-based Motorola, Finland’s Nokia, Sweden’s Ericsson and Germany-based Siemens AG together have more than 90 percent of China’s market for mobile handsets.

However, service providers face troublesome questions, such as whether China will choose GSM or CDMA as its main standard for wireless transmission.

GSM, used by most of the world, is the system of choice in China. But China Unicom revived hopes for CDMA, the dominant standard in the United States, when it recently ordered $1.5 billion in CDMA-based network equipment.

Some U.S. analysts worry that China will use CDMA contracts as a bargaining chip in the future, especially with tensions about U.S. support for Taiwan and the Bush administration’s plans for missile defense.

Gartner’s Johnson said Chinese companies are ”determined to be self-sufficient” and want to use Western technology to their advantage.

He does not believe foreigners will reap the staggering profits that they imagine. Chinese now buy equipment and handsets from foreigners, but Johnson said they are learning how to do it themselves as they go along.

China’s state censors will likely pose another problem.

Telecoms executives worry that the mobile Internet may take longer to set up in China because, even after WTO entry, the government will still want to closely regulate what people read.

All online content in China must come from state-approved sources, and offenders risk running afoul of anti-subversion laws that can carry lengthy prison terms.

Despite all the worries, telecom executives say they expect big profits from China after WTO entry.

Some analysts dismiss the optimism as China-hype.

”Tell me who’s making spectacular money in China,” Johnson said. ”Nobody is. It’s a tough market.”

But Bidaud said service providers could afford to wait two or three years for China’s market to truly open. That’s because the global economic downturn gives them enough to worry about elsewhere.

”The days of international expansion are really on hold,” he said. ”Their competitors are doing the same thing they are, which is waiting.”

AT&T: http://www.att.com

Motorola: http://www.motorola.com

Nortel: http://www.nortelnetworks.com

China Mobile: http://www.chinamobile.com/english/english.htm


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