Can Beijing get its 3G act together for 2008 Olympics?

The 2008 Summer Olympics is going to be China’s coming out party, a chance for the country to show its modern face to the world.

To that end, the Chinese government is pouring billions of dollars into new roads, modern stadiums, and an expanded subway network to prepare for the games. With less than 400 days until the opening ceremony on Aug. 8, 2008, workers and officials appear on track to have everything ready.

Everything, that is, except 3G, or third-generation mobile technology.

China remains one of the few Asian countries without 3G service, despite years of breakneck economic development and a love of high technology. Telecom analysts and industry insiders have long sought to divine the plans of China’s Ministry of Information Industry (MII), which regulates the telecommunications sector, to give operators licenses for the technology.

Year after year, the forecast was always for licenses to be issued later this year or early next year. Eventually, most observers gave up guessing, tired of the game, as foreign equipment makers waited for a presumed surge in orders for 3G gear that never came.

The main obstacle was TD-SCDMA (Time Division Synchronous Code Division Multiple Access), a 3G standard that was largely developed in China and remains unproven. The Chinese government spent heavily on TD-SCDMA development, and officials won’t give the go-ahead for 3G licenses until the technology is ready for deployment.

When that might happen is anybody’s guess. But TD-SCDMA trials are underway in several Chinese cities and Nokia has handsets ready to ship early next year, suggesting the technology may be close to commercial use.

When Beijing won the bid to host the games, officials promised a “High-Tech Olympics” to highlight new technologies and showcase China’s economic development. 3G was going to be one of the technologies on display.

“We shall energetically develop the mobile communication technology of the third generation,” the Beijing Organizing Committee for the Games of the XXIX Olympiad (BOCOG) promised in documents compiled for the city’s bid.

After Beijing won the bid, China Mobile Communications (China Mobile), the country’s largest mobile operator, described how it planned to use 3G.

The company said visitors would be able to buy tickets for Olympic events and watch live video coverage on their 3G phones, as well as access information about restaurants, shopping and sightseeing. Athletes and staff would also use 3G to access information related to the games, it said.

China’s commitment to the use of 3G during the Olympics was reinforced last December by Wang Xudong, China’s minister of information industry, who promised operators would have 3G licenses in time to build their networks for the Olympic games.

BOCOG officials declined to answer questions concerning the use of 3G during the games, but analysts expect the government to deliver on its 3G commitment.

“The Chinese government will not break its promise,” said Kevin Li, an analyst at In-Stat China, in Beijing.

But regulators have another hurdle to overcome before 3G licenses can be issued

China’s telecommunications industry is split along geographic and technological lines, with two fixed-line operators and two mobile operators, as well as several smaller players. Since this structure was created in 1999, the industry has changed, complicating the 3G licensing process.

China had 110 million fixed-line phone subscribers and 33 million mobile subscribers at the end of 1999, according to government statistics. Fast forward to May 2007 and the numbers tell a very different story: China had 372 million fixed-line subscribers and 496 million mobile subscribers.

The disparity in subscriber growth is reflected in the financial performance of China’s fixed-line and mobile operators, especially China Mobile.

China Mobile saw its revenue rise 24.9 percent during 2006, while China United Communications Corp. (China Unicom), the country’s other mobile operator, saw revenue increase 11.3 percent. By comparison, fixed-line operators China Telecommunications (China Telecom) and China Network Communications Group (China Netcom) saw their revenue rise 6.3 percent and 4 percent, respectively.

“China Mobile’s growth has made it the envy of other operators in China,” wrote Matt Walker, a senior analyst at Ovum, in a recent research note.

To put operators on a more equal footing, China is widely expected to split up China Unicom, which operates both a GSM (Global System for Mobile Communications) and CDMA networks. In this scenario, China Unicom’s cellular operations would be divided between China Telecom and China Netcom, which do not currently offer cellular services, although both companies are involved in TD-SCDMA testing.

But how the industry gets restructured is not up to MII alone.

The State-owned Assets Supervision and Administration Commission (SASAC), which oversees China’s state-owned companies, plays a central role in the restructuring process, and will help determine which 3G technologies operators are allowed to use with their licenses. The National Development and Reform Commission and Ministry of Science and Technology also have a say in these decisions.

Once the questions of TD-SCDMA’s readiness and the industry restructuring are resolved, MII can issue 3G licenses .

That’s likely to happen during the first half of 2008, with licenses for TD-SCDMA, W-CDMA (Wideband CDMA), and CDMA2000 1X EV-DO (Evolution Data Optimized) networks granted simultaneously, In-Stat’s Li said. But not all of these networks will be in service for the games.

“At least one type of 3G service will be commercially available during the 2008 Olympics, but we are not sure which technology will be available,” Li said. “That’s up to the operators.”

The most likely bet is TD-SCDMA. Operators have already signed contracts to build TD-SCDMA networks in Beijing and other cities, including Qingdao, where the Olympic sailing events will be held. Similar deals have not yet been struck for W-CDMA and CDMA2000 1X EV-DO, giving the homegrown 3G technology a head start for the games.