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Christine Chan

China Unicom has announced a rethink of its mobile-phone strategy one week before the launch of its record US$4.57 billion public share issue.

The mainland's No 2 telecommunications carrier plans to migrate its proposed narrow-band CDMA (code division multiple access) system now being built to the more advanced third-generation standard, a company official told yesterday's China Daily Business Weekly.

The new wide-band standard is known as CDMA 2000.

The company had planned to provide CDMA services this summer via a nationwide mobile network, with a designed capacity of 50 million lines.

This required an investment of more than 100 billion yuan (about HK$93 billion), according to the newspaper.

'The timing for building a narrow-band CDMA system has become unfavourable, so we plan to build a wide-band CDMA 2000 network,' said the official.

'We have to minimise the risks of such a huge investment.' Last week, China Unicom caused a stir when it told analysts in Hong Kong that it had no definite plans for a CDMA network, but later countered through various state media that it was still committed to the CDMA plan.

Shares in Qualcomm of the United States, which licensed China Unicom to use the narrow-band technology, tumbled 13.09 per cent on Wednesday over worries about a possible setback on the mainland.

The flotation could be one of the biggest by a mainland company, if it sells at the high end of its price range.

The plan to embark on the capital-intensive third-generation universal mobile telecoms system would mean the original agreement 'could be cancelled', although Qualcomm would benefit from China Unicom's use of the more advanced technology in future, the newspaper said.

The migration would also mean that two years of preparations for the CDMA project would be shifted to serve the new standard, it said.

China Unicom might need to make provisions against its existing CDMA technology, although it was not known how much had been built, according to Daiwa International Capital Management (Hong Kong) chief investment officer Ambrose Chang Chung-kwong.

Analysts said the third-generation network brought equal parts of uncertainty and potential.

Mr Chang said: 'The third generation may bring more uncertainty than existing systems. There has been no track record of its return and profitability.' Experts say that intellectual property rights to more than 50 per cent of the technologies used in the CDMA 2000 system are held by Qualcomm.

On a technological level, the US-favoured CDMA system is the same as Europe's GSM (global system of mobile communications), which is widely used in the mainland.

Industrial experts said the timing of the CDMA deployment is poor because of the anticipated introduction of the third-generation of mobile communications.

In contrast to narrow-band GSM and CDMA networks, third-generation telecom systems, which are likely to be commercialised in 2003, will enable faster wireless transfers of, for example, video images and other multimedia.

The State Council last year authorised China Unicom as the mainland's sole builder and operator of a CDMA network.

Last week, Beijing announced it would spend 5.3 billion yuan to aid initial development of a third-generation network, with 300 million yuan earmarked for this year.

A Ministry of Information Industry official said it was looking at how to integrate domestic and foreign mobile-phone facilities.

He also said Beijing would consider political and technological issues in determining which standard to adopt.

He said Beijing was in talks with US investment bank Goldman Sachs to partly finance the government's 3G investments, including via venture capital funding.

He said a basic system test would be completed by the end of the year, with call traffic beginning in 2002.

The third generation of the GSM standard is known as WCDMA.

According to the China Daily Business Weekly, military-supported Great Wall Telecom, which operates trial CDMA systems in four mainland cities, will eventually be allocated to China Unicom.

China Unicom aims to raise between US$3.62 billion and US$4.57 billion at a public share sale starting June 13.

Under the proposal it reserves the right to accept oversubscriptions up to US$5.26 billion.



Unicom changes tack on mobiles