China Unicom, the country's second-largest wireless operator, aims to challenge China Mobile's dominant position and win a third of future users of third-generation (3G) mobile services.

The news comes after Unicom said this week it would invest up to Rmb100bn ($15bn) in the next two years to upgrade its network, with most of the money spent on the development of 3G.

Unicom is merging with fixed-line operator China Netcom as part of Beijing's plan to reorganise the telecoms sector into three operators, each with wireless and fixed-line services.

As part of the shake-up, China Telecom, the country's biggest fixed-line operator, is taking over Unicom's CDMA mobile business. Unicom will continue to operate a bigger and more profitable GSM network.

The restructuring is a prelude to the introduction of 3G mobile services in China. Unicom, China Mobile and China Telecom are all expected to be awarded 3G licences.

China Mobile has the largest number of wireless subscribers of any operator in the world, with 70.8 per cent of the country's market.

Unicom's GSM business accounts for only 21.8 per cent and its CDMA operation has just 7.4 per cent.

China Mobile has been getting more new customers, with 85.7 per cent of new mobile users in China signed up for its services in the second quarter of this year, compared with 12.9 per cent for Unicom's GSM operation and 1.4 per cent for CDMA.

Analysts said yesterday that Unicom's target of grabbing a third of the 3G market was achievable because the group was expected to build its services on the widely used and commercially proved European W-CDMA standard.

China Telecom is expected to adopt the US-favoured CDMA2000 standard. China Mobile is expected to go with the unproved, Beijing-backed TD-SCDMA technology - the standard is undergoing trials in eight Chinese cities.

Kelvin Ho, analyst at Nomura, said: "Unicom has an advantage because W-CDMA is much more mature than TD-SCDMA. W-CDMA is perhaps better than CDMA2000 too as there are more W-CDMA handsets available in the market and they are cheaper."

Unicom said it expected to get a 3G licence once the merger with Netcom was completed, which was likely to be in the fourth quarter.

It added that following the merger, Chang Xiaobing, chairman and chief executive of Unicom, would hold the same titles at the combined company.

Netcom will be delisted from the Hong Kong stock exchange on October 15 and its US depositary receipts will be withdrawn from the New York Stock Exchange on the same day.

Source:ft.com