Unicom, which is preparing to merge with fixed-line carrier China Netcom Group Corp as part of the central government's revamp of the telecommunications industry, will take on market leader China Mobile in the lucrative mobile market.

China Mobile is running commercial trials of its own 3G services in 10 cities, with introduction planned for 28 cities, mostly provincial capitals, next year.

However, Unicom could have the edge in the race to attract customers.

The merged company, to be called China Unicom (Hong Kong), is expected to receive a 3G licence for the more commercially attractive European-developed WCDMA technology.

WCDMA is a mature 3G standard compared with the mainland's home-grown TD-SCDMA standard to be operated by China Mobile. TD-SCDMA has experienced teething problems during trials, including poor voice reception.

Fixed-line market leader China Telecom is expected to run a United States-developed 3G standard called CDMA 2000.

'The take-up of 3G mobile services on the mainland will be much faster than in the developed European market,' Mr Chang said yesterday.

'Global 3G phone users now account for 11.3 per cent of total mobile users, not including the mainland and India.'

Unicom's 3G operations are expected to break even on earnings before interest, tax, depreciation and amortisation in the first year and record a profit in the following year.

Mr Chang said the mainland could have a 20 per cent penetration rate for 3G services by 2012, much faster than experienced in Europe.

However, he said the company needed to invest aggressively to meet expected demand for the new technology.

Unicom has boosted capital expenditure on its GSM network this year by 87 per cent to 35 billion yuan, allowing for an easier migration to 3G.

'We are planning to improve the GSM network in 50 cities this year, and the initial stage of 3G coverage should not be less than 50 cities,' said Mr Chang, adding that WCDMA could give the company competitive advantages.

However, he admitted that the company still lagged behind its competitors in the 2G mobile market.

'There could be fierce competition in the 2G market in the future, so we need to focus on WCDMA,' he said.

Unicom's GSM service had 128 million users in the first half, while rival China Mobile had more than 400 million customers and was adding 7 million each month.

Mr Chang said the company should be able to introduce the first phase of WCDMA services in the third quarter of next year if the government issued 3G licences by the end of this year.

Unicom was comfortable with a 100 billion yuan commitment to 3G, with chief financial officer Tung Jilu saying the merged company would have cash flow of 65 billion yuan per year.

Beijing is restructuring the mainland telecommunications industry to reduce the dominance of China Mobile, which controls more than 67 per cent of the mobile market.

The central government plans to create two new full-service telecommunications operators, with fixed-line player China Telecom to acquire Unicom's CDMA mobile operations, while the merger of Unicom and Netcom will compete with China Mobile.

Unicom yesterday said revenue increased 4 per cent to 35.14 billion yuan in the first six months of the year. Earnings of 4.42 billion yuan were in line with market forecasts of between 4.11 billion yuan and 4.17 billion yuan. The company did not declare an interim dividend.

Separately, Netcom yesterday said its interim net profit fell 5.2 per cent to 6.38 billion yuan. The company did not declare an interim dividend.