Under the TD-SCDMA industry framework, mainland vendors such as ZTE, Huawei Technologies and Datang Mobile can use their own patents in exchange for the foreign vendor-owned patents to produce a comprehensive TD-SCDMA mobile platform.

Industry watchers said the royalty payment on existing CDMA products was charged on a per-unit basis; Qualcomm can charge a CDMA product 4 per cent of its listed price in royalty fees.

According to the Beijing-based TD-SCDMA Industry Alliance, 56 firms from China and elsewhere are involved in the TD-SCDMA technology, making devices or equipment for the standard.

The mainland government and its industry partners have been developing the technology since it was adopted as one of the global 3G standards in 2001.

While that development has been cloaked in national pride, observers have pointed to the input of foreign companies.

The use of patented technologies from United States and European vendors has sparked debate on whether TD-SCDMA is a truly Chinese home-grown technology.

'China is the first country to develop the TD-SCDMA 3G technology, and after it was adopted as an international standard, international vendors such as Siemens and Nokia contributed to the technology,' said ZTE vice-president Shen Donglin.

Mr Shen stressed that the essential TD-SCDMA technology was held by Chinese companies but during the development stage, other vendors would contribute their expertise as part-owners of patents.

'Siemens is quite serious on the TD-SCDMA project and owns some patents in TD-SCDMA as well,' Mr Shen said.

'As we (the Chinese vendors) hold some patents in TD-SCDMA, we enjoy an equal status with foreign vendors holding patents in telecoms technology.'

He said mainland vendors had no intention of charging royalty fees on products to other participants in the standard.

'We just want to share the patent we have and avoid the charge with each of the TD-SCDMA's patent owners, and such cross-licensing arrangements are common practice in the industry.'

But he said a royalty fee might be imposed if foreign technology vendors raised the issue. 'If the foreign vendors don't want to manufacture products in the TD-SCDMA standard, and they hold part of the patents on TD-SCDMA technology, they would need to negotiate with local vendors for the royalty fees on the use of the TD-SCDMA patents,' Mr Shen said.

Cross-licensing, the key to reducing royalty payments, could also be applied between two different types of technologies, on the basis that it provided value to each to the parties involved.

Wang Jing, the secretary-general of the TD-SCDMA Industry Forum, an industry organisation, agreed.

'It's not important how many patents we have,' he said, noting that mainland vendors held patents for the air interface of TD-SCDMA.

An industry source said the matter of royalties could become complicated given the high input of foreign technology in the standard.

'What we learned from mainland equipment vendors is that only 40 per cent of TD-SCDMA technology is developed by the mainland. The remainder draws on technology from Siemens,' the industry source said.

Qualcomm, which holds the CDMA patent globally, said that since TD-SCDMA was based on its patent for CDMA technology, it was authorised to charge the TD-SCDMA vendors royalty fees. Qualcomm Asia Pacific said the company had signed numerous agreements with equipment vendors to license Qualcomm technology to produce WCDMA (Wideband Code Division Multiple Access) and TD-related products.

The mainland telecommunications industry has said little about royalty issues, despite the potential such payments offer for investment returns.

The sector is focusing its efforts on fine-tuning the TD-SCDMA trial networks in the 10 cities, with the Ministry of Information Industry revealing two weeks ago that it was ready to launch the 3G network this year in tandem with a long-awaited restructuring of the industry. The re-organisation is expected to see China Unicom broken up and its mobile assets sold to fixed-line operators China Netcom and China Telecom.

The restructuring would result in three operators - China Mobile, China Netcom and China Telecom - providing a broader range of services, including fixed-line, mobile and broadband.

China Mobile, the nation's largest mobile operator, has spent about 25 billion yuan to bring the technology to commercial use by building a TD-SCDMA trial network in eight major cities: Beijing, Shanghai, Guangzhou, Shenzhen, Qinhuangdao, Xiamen, Tianjin and Shenyang. China Telecom and China Netcom are in charge of the trial networks in Baoding and Qingdao, respectively.

The central government wants to showcase the TD-SCDMA standard during the Beijing Olympics. A successful trial would pave the way for the issuing of 3G licences.

The TD-SCDMA Industry Forum believes that success is almost certain given the standard's strong support from the government.

Mr Wang said TD-SCDMA was developed much more quickly than other 3G standards.

'We took only four to five years to bring the new technology to the current level of maturity, while the rival technologies were the product of more than 10 years' research and development,' he said.

'Our cost base is also lower than the WCDMA technology, as our rival technology may need three times more to develop.'

Lower royalty and development costs should help boost the penetration of TD-SCDMA. As a 3G technology latecomer, TD-SCDMA could catch up because of the surging demand for mobile internet services.

'Once the technology is commercially launched and has subscribers, it will gradually be fine-tuned and the technical problems will be tackled,' Mr Wang said.

Market response for the other two 3G technologies was relatively soft when they launched in the early part of the decade, as the 3G transmission speed was only 384 kilobits per second when it hit the streets in Europe in 2002.

'The transmission speed is too slow for users. Our TD-SCDMA is also HSDPA compatible, which can offer speeds almost 10 times faster than previous 3G services,' Mr Wang said.

However, Qualcomm said the mainland had lagged behind other markets by four to five years.

Mr Wang said the Olympics would provide a showcase for the standard but that the Games were just part of the process. 'With the Olympics, we have users, we have applications, so we have opportunities to promote the new technology, and we can make the service better,' he said.

Beijing would be eager to demonstrate the nation's research and development ability through TD-SCDMA. Asked whether the success of the standard would be the key factor in 3G licensing, Mr Wang said it would be only one of the factors. The government still needs to consider other issues such as the competitive landscape in the mainland market.

Nevertheless, the mainland government's support for the TD-SCDMA technology has drawn criticism from some foreign industry watchers and analysts. They question whether it is worth waiting for the young technology to mature at the expense of letting the mainland 3G market lag the world's by five years and blocking the entry of the other two global 3G standards, WCDMA and CDMA2000 (Code Division Multiple Access 2000).

'We don't know the progress of the TD-SCDMA and it is difficult for us to know whether it is successful or not as the government keeps everything secret,' said Duncan Clark, a telecommunications analyst at BDA China. 'It is a project about national pride and the whole mainland China telecoms market has been lagging behind other countries in the region by five years as no 3G service has been launched.'

Mr Clark said that with the government subsidising the project, industry interests had been sacrificed. . 'It's a political issue,' he said.

Still, there are those outside the mainland who want the standard to succeed. 'I do want TD-SCDMA technology to be a success as China would have a would have a share in the patented technology,' said a Hong Kong-based mobile network veteran.

'But the success of TD-SCDMA would mainly depend on the attitude of the Beijing authorities. Foreign countries might put pressure on China as the mainland would put its first priority on the home-grown standard. This might affect the ultimate outcome of TD-SCDMA.'

With China becoming the world's biggest mobile market by subscribers and the expectation that 3G users are forecast to reach eight million this year, the mainland market is no longer just a Chinese government affair. The adoption of the European-based GSM (Global Standard for Mobile Communications) system in the 1990s for second-generation mobile service, indirectly led to the government adopting the US-based CDMA (Code Division Multiple Access) nationwide network in 2002. Market watchers saw the introduction of CDMA as a move by Beijing to placate the US side.