China Mobile Explores 4G Option

China Mobile (CHL - Analyst Report) has reportedly accelerated the development process of its 4G (next generation) mobile broadband network. The world’s largest carrier has already completed the first phase of trials and is set to commence the second phase in late July or early August 2009.

A successful completion of the second-phase trials (expected by the end of 2009) will pave the way for launching field tests in early 2010. China Mobile has partnered with Vodafone (VOD - Analyst Report) and Verizon Wireless (VZ - Analyst Report) for the TD-LTE venture and has selected Ericsson (ERIC - Analyst Report), Alcatel-Lucent (ALU - Analyst Report), Nokia Siemens, Huawei Technologies and ZTE Corp as the primary technology vendors. The company plans to devote approximately 60% of its capital expenditure over the next few years to develop its 4G network.

China Mobile recently accelerated its development plan for TD-LTE due to uncertainties regarding the success of its 3G services based on TD-SCDMA. The company faces challenges regarding the adaptability and performance of this indigenously developed 3G standard.

This is due to the fact that other European and American based 3G standards such as WCDMA and CDMA2000, which are licensed to China Unicom (CHU - Analyst Report) and China Telecom (CHA - Analyst Report) respectively, offer faster network speeds and already have wide acceptability in the marketplace. For example, the CDMA 2000 based 3G network of China Telecom is 50% faster than China Mobile’s TD-SCDMA network. Additionally, TD-SCDMA also suffers from certain limitations when it comes to international roaming.

Leading carriers across the world have adopted LTE as the base technology standard for 4G network upgrade initiatives due to its fast data transfer capability. LTE offers rapid downlink and uplink speeds of 100 megabits per second and 50 megabits per second, respectively, which is competitive or faster than other leading 4G standards including WiMax.

China Mobile aims to leverage the 4G TD-LTE opportunity to offset limitations of the TD-SCDMA based 3G services, which may restrict its wider market adoption. Moreover, this move will also provide an opportunity to leapfrog over its Chinese peers to emerge as the first carrier to deploy 4G LTE-based mobile broadband network in China, representing a significant competitive advantage. That said, we maintain our Buy rating on China Mobile.