EL SEGUNDO, CA – The Chinese government is offering 3G licenses to the four state-owned telcos – China Mobile, China Unicom, China Telecom and China Netcom – as incentives, if they are willing to accept reforms, according to iSuppli.

The National Development & Reform Commission believes a fundamental restructuring of the nation’s telecom industry is essential to promote the long-term growth of the country’s fixed and wireless core communications networks, says the firm.

Much of the responsibility for reforms reportedly can be attributed to China Mobile. The company has a near monopoly in China’s mobile communications market with $37.8 billion in revenue, accounting for 76% of the nation’s total mobile communications revenue. China Mobile also had a net profit of $8.5 billion last year, which is 10 times the profit of China Unicom, three times that of China Telecom and six times that of China Netcom, says iSuppli.

iSuppli says China’s core fixed and wireless networks are transitioning to IP-based next-generation networks. Furthermore, increasing numbers of media gateways and servers will allow China’s telecom networks to deploy advanced support services, video content distribution and online gaming. Mobile handsets will have to incorporate more advanced multimedia capabilities and open operating systems, according to the researcher.

Releasing 3G licenses in China has become a political issue, says iSuppli. The biggest barrier to introducing 3G services is the high level of licensing fees that must be paid by Chinese operators, mobile infrastructure suppliers and handset manufacturers. Much of the postponement is coming from the Chinese government, which is still negotiating with companies such as Qualcomm and Siemens, which own many of the 3G technology patents, adds the firm.

iSuppli believes China will issue three licenses during the first half of 2008, and is certain that China Mobile will be given a license to deploy TD-SCDMA networks. China is not expected to deploy more than three national 3G networks, as regulators aim to reduce capital expenditures through base-station site-sharing arrangements, as well as radio access network and core-network sharing.

iSuppli forecasts that China’s TD-SCDMA 3G subscribers will jump to 28 million by 2011, up from 1.1 million subscribers this year. By 2008, 3G subscribers in China will reach 6.4 million. For each of these subscribers, a new mobile handset will be required, offering a selling opportunity for many companies inside the wireless telecom industry.

However, iSuppli says a key revenue driver in China will come from the applications that will be enabled by 3G. Chinese consumers will be able to access the Internet, download music, stream Internet video, use mobile mailboxes, pay bills online and engage in mobile blogging and interactive 3D gaming—all through their mobile phones.

iSuppli forecasts China’s 3G value-added services market will grow to $19.5 billion in revenue by 2011, up 45% from 2006, maintaining a CAGR of 17.4%.