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Huawei, ZTE win bulk of China Mobile's $3 billion 4G bonanza: sources

A man looks at a Huawei mobile phone as he shops at an electronic market in Shanghai January 22, 2013. REUTERS/Carlos Barria
A man looks at a Huawei mobile phone as he shops at an electronic market in Shanghai January 22, 2013. REUTERS/Carlos Barria

By Lee Chyen Yee

SINGAPORE (Reuters) - China Mobile Ltd has awarded initial 4G contracts worth around 20 billion yuan ($3.2 billion), with Chinese firms securing more than half of the biggest prize in the global telecoms industry this year and foreign firms winning about a third, industry sources said.

Telecoms equipment makers, such as global leader Ericsson and Huawei Technologies Co Ltd, have been waiting for China Mobile's 4G tender to lift the fortunes of an industry that has been hit by a lack of spending worldwide.

The development of a 4G network by the carrier, which with more than 700 million mobile customers is the world's largest by subscribers, is also regarded as key to it clinching an agreement with Apple Inc to carry its blockbuster iPhone.

"This is the tender that global telecom equipment vendors have been vying for this year," said an industry source.

"Even though we see Huawei and ZTE getting the bulk of the contracts and foreign vendors getting around a third, I'm sure they will keep going back to China Mobile and get a bit more share."

Shenzhen-based Huawei and crosstown rival ZTE have obtained about 25 percent each of the total 4G procurement in China Mobile's tender this year, said the sources, who are familiar with the negotiations but declined to be identified because they are not authorized to speak to the media.

European vendors Ericsson, Alcatel-Lucent SA and Nokia Siemens Networks (NSN) have obtained a share of around 10 percent each, the sources said.

The first wave of 4G investments that began in 2010 in Japan and Korea favored Ericsson and NSN, while the second in the United States went largely to Ericsson and Alcatel-Lucent. Huawei won a chunk of Europe's 4G contracts last year.

Some western markets have been wary of using Huawei and ZTE equipment on their networks.

The European Union has been considering launching an investigation into whether both Chinese firms benefit from illegal government subsidies, while a U.S. congressional committee is probing whether their equipment poses national security risks.

STEP TOWARDS IPHONE DEAL

China Mobile said in an emailed statement that the tender had indeed begun and the progress had been smooth, with the carrier planning to build 200,000 base stations this year, in line with its previous target.

Huawei and Ericsson could not be reached immediately for comment. ZTE declined to comment, while Alcatel-Lucent said it had not yet heard of any official decision from China Mobile.

So far, China Mobile has only spent around a third of its full-year capital expenditure of 190.2 billion yuan in the first half, with the market expecting spending to speed up once the tender takes place.

ZTE, which is listed in Hong Kong and Shenzhen, is expected to post a third quarterly profit for the July-September period due to cost-cutting measures and as it shunned low-margin contracts that resulted in its first-ever annual loss last year.

"We believe telcos' capex will be heavily skewed to the second half of 2013, which will refuel ZTE's carrier networks segment's momentum," brokerage CMB International said in a report.

"ZTE withdrew from some overseas market and re-focused on domestic operator's contracts to protect (its) margin."

The Chinese government is likely to issue licenses later this year, which will help China Mobile compete better with its rivals China Unicom and China Telecom, which have better 3G technologies.

And with Apple expected to unveil its next iPhone and a cheaper version next month that will likely support China Mobile's 4G TD-LTE technology, everything seems to be falling in place for the two giants to sign an agreement.

China Mobile is the only Chinese carrier without an iPhone contract, which will be key to lifting the percentage of higher-end, data-crunching users on its network.

By mid-morning, China Mobile's shares had risen 0.3 percent, while ZTE's stock was down 0.3 percent, underperforming the main Hang Seng Index's 0.5 percent gain.

(Additional reporting by Leila Abboud in PARIS; Editing by Anne Marie Roantree, Paul Tait and Alex Richardson)

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