The economic downturn, coupled with the dramatic increase in capital expenditure and intensifying competition, means China's telecom industry is now on a downward spiral despite the arrival of the long-anticipated 3G-era, analysts said.

China Unicom, the country's second biggest mobile carrier, is scheduled to launch its 3G trials from May 17, the World Telecommunication Day, signaling the full arrival of China's 3G era. Its two rivals, China Telecom and China Mobile, have already launched 3G trial services in the country.

"The introduction of 3G services (in China) will not give the telecom carriers a big boost, as global experiences show that 3G has not been very helpful in driving business growth," said Wang Jinjin, a telecom industry analyst with UBS.

"The industrial restructuring, in which all of the country's three telecom companies become full service operators, will only worsen the competition," said Wang.

China Mobile, the world's biggest mobile phone operator in terms of subscription number, earlier this year got a license to deploy 3G networks based on TD-SCDMA, a homegrown 3G standard. China Unicom was granted a 3G license based on WCDMA, while China Telecom got one for the CDMA2000 standard, two widely adopted standards.

The three carriers have all announced huge investment plans to build their networks.

For example, China Mobile has earmarked 375.4 billion yuan for capital spending from 2009 to 2011 as it switches to the more advanced 3G network, up from 136.3 billion in 2008.

"The huge capital expenditure will weigh heavily on the telecom operators and curtail their return on investment," Wang said, predicting that China's telecom carriers' capital expenditure this year is expected to grow by 28 percent.

The relatively high pricing of 3G services may also keep customers away. According to a survey by www.3g.cn, an industry website, 60 percent of its 15,155 respondents said the current pricing "was too high".

One bright spot will be the equipment gear makers, including base station and cellphone manufacturers, analysts said.

The Ministry of Industry and Information Technology (MIIT), the telecom regulator, had said earlier that China would spend 280 billion yuan on 3G networks in 2008 and 2009.

"Compared to telecom operators, the prospects for telecom gear makers are a little better. Some of them, such as (Chinese companies) Huawei and ZTE, may even gain more market share in the process," Wang at UBS said.

Foreign telecom equipment makers' total share in China's 3G market may fall below 50 percent, BDA China, a Beijing-based telecom research firm, predicted earlier.

"One thing is for sure: China Mobile's dominant position is going to be weakened in the next two to three years," said Chen Jinqiao, deputy chief engineer from China Academy of Telecommunication Research, which is under the MIIT.

"The rollout of 3G services will make China the only major economy where investment in the telecom sector is still growing. It will help Huawei and ZTE a lot," Chen said.

(China Daily May 15, 2009)