GSM operators in Hongkong have won approval to import a sophisticated encryption system which will make it virtually impossible for eavesdroppers to listen into their customers' mobile phone calls. The decision by the British Department of Trade and Industry to grant an export licence for the A5 encryption algorithm is part of a compromise with European secret service officials concerned at losing the scrambling technology to communist countries. Now, Mr Kari Marttinen, chairman of the GSM group who has campaigned against export restrictions on the digital cellular technology, says even China may acquire the A5 system in due course. ''I believe that one day, China will have the A5 algorithm,'' he said. ''We don't know what will happen with certain countries which are not members of the GSM MoU group. ''We can discuss as much as we like the situation in China or Thailand or other countries but, until they apply to become members of the MoU, nothing moves.'' China is installing its first commercial GSM network in Guangdong later this year and has been trialling another system in Jiaxing, near Shanghai, since last year. It is expected to apply to become a member of the MoU group to benefit from the experience of other operators as well as to participate in the further development of the CSM standard. Singapore Telecom has already applied for an export licence for the A5 cypher for its GSM network, which is due to be launched in October. The issue of the A5 algorithm touched a raw nerve in the telecom industry because, while operators and suppliers were working hard at marketing GSM as a single worldwide standard for mobile communications, intelligence officials were threatening to limitits export to countries outside the Conference of European Postal and Telecommunications administrations (CEPT). In view of the fact the nature of the A5 ban was unclear, operators feared it could restrict the ability of customers to freely roam between GSM networks in various countries. Now, a compromise had been reached, said Mr Marttinen, which could restrict access to A5 technology in the network operator's equipment, but would not compromise international roaming by removing the algorithm from the customer terminal. ''I believe there will be no problem in supplying the GSM handsets all around the world with this (A5) algorithm,'' said Dr Peter Radley vice-president of mobile communications for Alcatel. For network equipment in non-Cocom countries, a special algorithm, called A5X, would be developed by May, he said. Instead of A5's 54-bit encoding key, which is transmitted between the network and mobile phone each time a call is made, A5X may employ a 20 or 30 bit key. Dr Radley said the telecom industry generally had failed to anticipate the political ramifications of incorporating very advanced technology into the GSM standard. The A5 export licences have been greeted with relief by Hongkong's GSM operators. ''We are very pleased indeed. I think it essential that we have one standard for GSM,'' said Mr Chris Jenvey, deputy director of Hongkong Telecom CSL Mobile, which plans to begin testing its GSM network next month. Mr Douglas Li, chief executive officer for SmarTone Mobile Communications, launched its GSM service earlier this year without A5 encryption. Suppliers Ericsson are now upgrading the network software to support full encryption. ''It takes substantial resources to decode the information as it is. This additional layer of encryption will make it super secure,'' said Mr Li. As Asia's first GSM networks find their feet this year, work is still going on in Europe to finalise the specifications for the introduction of phase two GSM networks. Compared to the fairly modest set of voice and call transfer services available with the first GSM networks, the fully featured phase two systems should be open by mid-1995, with the core specifications being determined by the middle of this year, according to Mr Marttinen. Most importantly, phase two of GSM would incorporate a system of half-rate coding which would double the subscriber capacity of the current networks. Cellular operators in Hongkong are now having to take careful stock of the options open to them before investing in costly new digital cellular technology which may be outdated by the next generation of mobile phone systems, the personal communications network (PCN). While Hutchison Telephone is pressing ahead with the implementation of a TDMA network to supersede it analogue AMPS system, its plans to implement GSM are less certain. Much is dependent on the time its supplier, Motorola, takes to develop suitable products.