Analysts also said it would take several years for 3G services to become popular and reach a critical mass of customers. Only then can it start generating profits for the telecom carriers, they said.

Telecom carriers must also lower the cost of 3G services and develop innovative applications on the new platform to help the business really take off, they said.

Developing 'killer application' key to 3G business growth

According to an online survey by sina.com, the largest portal in China, although 59 percent of 363,000 respondents said they would "ultimately become a 3G subscriber" in the future, nearly half said the cost was simply "too high" to make them switch.

In addition to the high cost of services and the need to buy a new handset, 17.5 percent of the respondents said the limited number of 3G applications was the third key reason why they would not rush to be a part of 3G services, the survey found.

"Developing killer applications (such as text messaging in the 2G era) is critical to spur the 3G business as people are still used to and satisfied with the dominant voice and text messaging services available now," said Chen Jinqiao, deputy chief engineer of the China Academy of Telecommunication Research, a think-tank affiliated to the Ministry of Industry and Information Technology (MIIT), the telecom regulator.

"This is the only way that the 3G business can really take off," Chen said, predicting it would take at least five years for 3G to become widely accepted in China.

And the rollout of the services, seen by many as a good chance for the country's two smaller carriers China Unicom and China Telecom to catch up with their much bigger rival China Mobile, is also unlikely to change the industry landscape considerably.

The new services, analysts said, gave China Unicom and China Telecom more of a competitive edge even as it disadvantaged China Mobile in the 3G era.

China Unicom, currently the second biggest mobile carrier, was granted the most popular WCDMA standard, a move that analysts said gave it the edge competing with its two rivals.

China Telecom, the country's biggest fixed-line phone carrier, could cross-sell its mobile services to its existing fixed-line user base, and therefore, can offer a differentiated product mix, analysts said.

China Mobile, on the other hand, would face increasing competition, and may see its customer addition rate drop, they said. China Mobile added 88 million users in 2008, more than the 80 million the company expected.

But its customer additions may drop by 25 percent to 66 million this year as China Telecom and China Unicom start 3G services, Tim Smart, an analyst at Macquarie Group, wrote in a research report.

Starting this year, the revenue growth at China Unicom and China Telecom is likely to pick up pace as a result of the 3G rollout, said Fang Lu, a telecom industry analyst at Shenyin & Wanguo Securities.

"Their revenue growth rate will be close to that of China Mobile by 2013," Fang said.

Revenue growth at China Unicom, China Telecom and China Mobile is expected to reach 3.19 percent, 1.54 percent and 11.24 percent this year, respectively. It is likely to hit 7.59 percent, 8.62 percent and 8.83 percent, respectively in 2013, Fang predicted.

Even though it is at a disadvantage in the 3G era, China Mobile, which had 463.9 million subscribers at the end of January, or about 70 percent of the market share, will continue to hold on to its dominant position in the industry in the near future.

China Mobile, analysts said, has the advantage of a much larger customer base and deeper pockets to subsidize handset purchases if it chose to do so.

"As long as the regulator does not issue any drastic asymmetric regulation against China Mobile, its dominant position will not be challenged in the next three years as China Unicom and China Telecom will still be largely involved in their internal integration tasks," said Zheng Ping, a researcher with the Research Institute of Communications Policy at MIIT's China Academy of Telecommunication Research.

"Its position will nevertheless be weakened after the restructuring and the rollout of 3G, but it will take a much longer time to fundamentally change the industry landscape," Zheng said.

UBS's Wang said she expected the ultimate market make up to be one where China Mobile held 60 percent of the market share with China Unicom taking 30 percent and China Telecom 10 percent, or where China Mobile commanded 60 percent of the market, with China Unicom and China Telecom each taking 20 percent share.

At the moment, however, the pressing task before all three carriers is to convince people like Li to subscribe to 3G services. Only that will see their huge investment in 3G services actually helping to generate revenue and profits.

"For the time being, I have no interest in, and imperative to try 3G; voice and text messaging are more than adequate for me," Li, the doctor from Beijing, said.

(China Daily June 8, 2009)