Copyright 2002 Toronto Star Newspapers, Ltd.

Toronto Star…06/14/2002

From LexisNexis

Canadian telecommunications equipment giant Nortel Networks says demand from China will start to pick up later this year, although the mainland market for networking gear won't soon return to 2001's boom levels.

"We think the market in 2003 will not be as big as in 2001," said Robert Mao, president of Nortel in China, describing the first half of this year as slow.

"Maybe 2004 will be as big as 2001," Beijing-based Mao said in an interview while in Hong Kong for the 3G World Congress on telecommunications.

Mao figures the mainland market for fixed and wireless network infrastructure, not counting cables, was worth roughly $7 billion to $9 billion (U.S.) in 2001.

Last year, beleaguered foreign gear makers found a measure of comfort in the thriving mainland, which mushroomed into the world's biggest mobile phone market. But both of the country's wireless giants, China Mobile (Hong Kong) and China Unicom Ltd., have said they will slash capital expenditures this year.

"CMCC (China Mobile) and China Unicom, after two years of rampant growth, are in a period of digestion," Mao said.

China Mobile pared its capital expenditure plans for 2002 and 2003 to $4.5 and $4.1 billion, respectively, from earlier plans to spend $5.4 billion each year. Unicom said it would cut capital spending in 2002 by 30 per cent from a year ago to $2.62 billion.

Meanwhile, the recent restructuring of China's creaky fixed-line former monopoly, China Telecom, took longer than expected, putting purchasing decisions on hold.

Mao said, however, there is hope on the horizon in China.

Any such sign of growth would be welcomed by Nortel and its rivals, including Ericsson AB, Motorola Inc., Lucent Technologies Inc. and Nokia Oyj, which are suffering through a deep revenue slump.

In the near term, Mao said, Nortel expects soon to announce contracts to provide optical fiber networks in metropolitan areas. The metro network market in China has traditionally been the domain of rivals, including Lucent, Alcatel and local player Huawei Technologies, he said.

Mao also said he expects the second round of contracts for China Unicom's new CDMA-standard network to be awarded this summer. Last year, Nortel won $275 million of a total $1.46 billion outlay to build the first phase of the network.

Now that China Telecom has been carved into two carriers along north/south lines - with rights to enter each other's markets - Mao figures there will be opportunities to sell equipment to both so they can try to steal high-end customers on each other's territory.

Finally, both the fixed-line giants are expected to be granted mobile network licences, perhaps next year, Mao said. If they begin operations in 2004 or 2005, most observers expect they will do so using third-generation networks.

"That will provide great impetus for another round of market growth," Mao said.