To ensure 3G services would be provided during the 2008 Beijing Olympics, China has to make decisions on 3G license in the first quarter of 2007 by the latest. The distribution of TD-SCDMA license is among the most debatable issue particularly which firm would be responsible for constructing the 3G network and infrastructure that us based on TD-SCDMA standards.   Although 90% of China’s cell phone users have not yet established the habits of surfing wireless Internet, a group composed f more than tens of millions is very active in using wireless Internet services and this is the foundation of the success of the future 3G business.   On November 6, the trial for the home-grown TD-SCDMA standard started trial in Qingdao, Baodin, Xiamen and Beijing and the China-made 3G mobile phones are also in two-month trial in Shanghai. The test results are believed to be crucial in whether 3G services can be launched in time for the Olympics.   Analysts with Norson Telecom Consulting points out that there are two prerequisites for the distribution of 3G licenses. First, China insists on one of the 3G licenses would be for TD-SCDMA and constructed by a domestic operator. Second, the 3G licenses for TD-SCDMA would be the first one to be distributed. Norson estimates that China Mobile will be the most likely operator to be responsible for constructing TD-SCDMA because of not only its strength and strong capital support but also its established experiences in mobile networks. Although China Mobile has focused on constructing a WCDMA network as a preparation for future 3G, its TD-SCDMA trial network in Xiamen is by far the most mature.   The Chinese government insists on promoting TD-SCDMA alongside two other international standards will result in cost-saving intention from intellectual property rights fees and also helps promote local telecom industry.   Another internal issue China has to deal with is an imbalanced domestic telecom sector. The recent fiscal reports released by China Mobile, China Telecom and China Netcom showed that the three operators’ first 9-month income are 212.69 billion yuan (US$26.59 billion), 127.2 billion yuan (US$15.9 billion) and 64.96 billion yuan (US$8.12 billion). The two fixed line operators started to suffer from zero growth in fixed line subscribers.   According to the statistics of the Ministry of Information Industry mobile services operators enjoy much higher growth in new subscribers in the first nine months than the fixed line subscribers. The country has total new subscribers of 7.04 million among which 13.75 million are fixed line subscribers and 56.79 million are mobile subscribers. Under such circumstances, a market-reorganization seems to be in order to have a market-oriented and services-oriented competition structure that is efficient enough for the age of 3G. Opening up the mobile services market for more competition is one of the most effective ways to achieve this goal.   Chief of development research center with the State Council Deng Shoupeng estimated on an IP communications forum that 40% of the total mobile services users would subscribe 3G services in the next few years. China would be able to save 30 billion yuan (US$3.75 billion) in network construction and maintenance after adopting a homegrown 3G standard. Local telecom firms would also be able to compete over a market worth 500 billion yuan (US$62.5 billion).   Industry analysts say that Chinese telecom equipment manufacturers led by ZTE Corporation, Comba Telecom Systems Holdings Ltd and China Grentech Corp will have an edge over foreign manufacturers in competing for the homegrown network. ZTE Corp has invested an enormous sum in researching and developing TD-SCDMA. An analyst with Daiwa Institute of Research Joseph Ho estimates that ZTE has invested 20% of the 80 billion yuan (US$10 billion) total investment in TD-SCDMA network research efforts in the past three years. Although ZTE’s annual income this year may fall 9% to 19.5 billion yuan (US$2.44 billion), it may jump 42% to 27.7 billion yuan in 2007 (US$3.46 billion).   Equipment manufacturing is not the sole focus of the 3G-industrial chain. It’s a complex chain that covers content support and end-terminal manufacturing. Apart from insisting on a homegrown 3G standard, China should also accelerate the distribution process of 3G licenses. As an analyst with DBS Vickers Securities Steven Liu puts it, if Chinese government fails to distribute the first 3G licenses by the first quarter of 2007, telecom operators will not have enough time to construct necessary network and infrastructure.