Reports indicate that China Mobile is moving ahead with the third and final phase of its 3G roll-out, inviting bids for RMB8.6bn (US$1.26bn) in network equipment, including 39,000 base stations. This had been anticipated, as China Mobile is stepping up network construction to fend off competition from China Telecom and China Unicom. It's also doing its bit to prop up the slowing Chinese economy by spending billions it might not otherwise have spent, at least not so soon. Sorry, shareholders, you'll have to get in line for your turn at the trough -- profit takes a back seat to the national (bureaucratic) interest.

The usual suspects are lining up for their final handout: Huawei, ZTE, Datang, Putian, New Postcomm, FiberHome, Nokia-Siemens, Ericsson and Shanghai Belling. According to market reports, Datang will cooperate with Shanghai Belling (a JV with Alcatel-Lucent), and FiberHome will use Datang equipment to compete. Postcomm, which relied on Datang equipment in the past, will try going it alone this time.

I'm not expecting any surprises when the results are made public. The locals will take more than 80% of the pie as they have in the past. For foreign telco equipment makers, the good old days are long gone -- both in China and globally. Huawei and ZTE are on the march, taking advantage of the local 3G market and global operators looking to quickly reduce cost. Investors should note, though, that much of China's 3G spending seems baked in to ZTE's stock price, so the company will have to show compelling and continuing growth in its international markets to justify a return to higher levels for its H shares.

With profit growth slowing, China Mobile is spend, spend, spend mode. It's betting (hoping, praying) that it can win the hearts and wallets of Chinese consumers inclined to sign up for 3G. The most recent round will push its coverage to 328 cities by year-end, or about 70% of China. How dense that coverage will be is still a big question mark, but that can be said for all three operators. China Telecom is  promising coverage in more than 300 cities by July, and China Unicom will officially crank up its network next month.

Although the standards used by China Telecom and China Unicom are more mature, it is China Mobile that still has an edge because of its widescale presence, including an extensive EDGE network. With 477mn subscribers, China Mobile is more than 3x the size of Unicom and 15x larger than Telecom's mobile base. China Mobile's advertising blitz is extensive, and its putting aside RMB10bn for subsidies this year.

Nevertheless, in the past few months, the underdog's have been gaining subscribers at a faster pace than China Mobile and they see 3G as a means to intensify the fight. The battle is just beginning.

That's all for now,

mc

PS: For related posts, see TD-SCDMA subs hit 500k; only 49.5m to go ... LG cuts direct deal with China Telecom, Unicom on 3G phones

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