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China to allow more cellphone vendors into local market

Posted: 21 Jan 2005 ?? ?Print Version ?Bookmark and Share

Keywords:mobile phone handset? ministry of information industry? gsm? cdma?

China's already competitive mobile phone handset market is expected to intensify this year as the government prepares to widen the market by issuing more licenses to local and foreign vendors allowing them to sell handsets.

Until now, the government's Ministry of Information Industry has used a "beauty contest" scheme to issue licenses, sometimes handing them to companies as political favors rather than based on technical merit.

The government wants to change that by moving to a qualification format, which would be handled by the National Development and Reform Commission. Companies would submit applications, and if a set of requirements is met, they would gain a license.

"The idea, at least if it is implemented as advertised, is that it would be a more market-based system," said Ted Dean, an analyst with the Beijing-based telecom consultancy BDA China. "The logic is that some of the players today are kept alive by the distortions of the old licensing system."

China already has about 25 local firms that have licenses to sell GSM and CDMA phones, according to iSuppli Corp. A small handful of foreign companies, such as Nokia and Motorola, are also licensed to do business through local joint ventures.

Because the domestic firms are known to "rent" their licenses to others, market observers believe there are some 100 companies vying for a market that reached 73 million units in 2004, and that will grow to 112 million by 2007, according to Analysys International, a Beijing market research firm.

Likely new entrants include Chinese consumer electronics firms, such as TV makers Changhong and Skyworth, as well as South Korean and Taiwanese handset ODMs, such as Pantech and BenQ Corp.

If the licensing system can truly shed its bias, then Dean believes competition will increase in the short-term. But the new, more market-oriented system should improve the long-term outlook by forcing a much-needed shake out, he said.

The new scheme may also curb the aggressive campaigns by domestic producers to gain market share, as more foreign firms enter the market. After making steady progress and hitting a peak of around 50 percent market share in 2003, analysts estimate local makers slipped to about 40 percent market share at the end of 2004. A concerted counterattack by foreign companies is credited with the decline, which occurred mostly in low-end GSM handsets.

- Mike Clendenin

EE Times

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