The restructuring of Chinese telcos looks set to score another victory for LTE in the battle to dominate next generation wireless. China Telecom, the fixed line operator which is acquiring cellco China Unicom’s CDMA operations. Although it says it plans to deploy CDMA2000 EV-DO Rev A as its initial 3G option, in two to three years’ time it will move to LTE. China Mobile, which will go with the Chinese TD-SCDMA standard for 3G, also plans to move to LTE at an early stage, and is working on trials with Verizon Wireless and Vodafone.
China Telecom joins Verizon, KDDI and other major CDMA carriers in abandoning the product roadmap at the 4G stage, effectively sounding the deathknell for Qualcomm’s own next generation, OFDMA-based system, UltraMobile Broadband. LTE is also likely to be the 4G choice for China Netcom, which is to acquire Unicom’s GSM activities and is tipped to deploy either TD-SCDMA or W-CDMA once it gets 3G licenses, now expected to happen once the reorganization is completed, probably around the turn of the year.
As details of the restructuring, outlined a week ago, emerged, it seems that Telecom will pay about $16 billion for Unicom’s CDMA business, creating one of the world’s largest operators with more than 43 million CDMA customers and more than 216.3 million fixed line subscribers, including 38.4 million broadband. Telecom’s parent company will pay 65% of the cost of the takeover, while the operator’s listed unit will fund the rest. Meanwhile, Netcom’s takeover of the Unicom GSM division is valued at $56.3 billion and will take the form of a share swap. Netcom will be delisted and become a wholly owned unit of the remaining Unicom.
Analysts have questioned the price of both deals, since the Netcom transaction is priced at almost twice the company’s market value, while the price tag for Unicom’s CDMA business is also high ‘ the CDMA portion is only one-third of the size of the GSM business and, according to the Reuters news agency, only broke even in 2006 after years of losses.
Shares in China Unicom, Netcom and Telecom have been suspended since May 23, following the announcement of the restructuring plan, which will also see China Mobile acquire smaller fixed line player China Railcom.
China Mobile has launched a second round of tenders for handsets and datacards based on China’s TD-SCDMA 3G standard. The operator said in a statement that it was preparing to purchase 100,000 devices, a significant increase on the 30,000 devices it procured in its first round of tenders in January this year. China Mobile has a special 3G license that will enable it to have a network running in time for the Beijing Olympic Games in August. This mandates the use of the Chinese 3G technology. In its statement, the cellco said that bidders for the tenders will need to have TD-SCDMA handset production licenses issued by China’s Industry and Information Ministry. More than 30 device manufacturers have been issued with such licenses to date, including China’s own Lenovo, ZTE, Guangzhou New Postcom and Hisense Electric; Korea’s LG and Samsung; and a range of international vendors including Nokia and Motorola.