It sounds trite, but perhaps the early bird does get the worm.

The idea must hold some weight, because a handful of Chinese mobile phone manufacturers are banking on this timeworn strategy. They are staking out the playing field in preparation for the moment when third generation (3G) mobile communications truly take off across the country.

It has been widely speculated that the Chinese Government is likely to unveil its 3G strategy later this year.

There are still no 3G-based telecom services in China. The development of 3G terminals has slowed the launch of the technology here. Leading domestic telecoms equipment manufacturers such as Huawei Technologies and ZTE Corp have already begun shipping their 3G handsets overseas in a move to get a head start on domestic competitors.

These firms are now competing with international handset giants such as Nokia, Motorola and Samsung.

Domestic phone manufacturers also edged into the industry spotlight earlier this month when they began bidding for a spot in the Taiwanese 3G market.

Telecoms operators there have rolled out their 3G strategies in advance of the launch of services later this year.

Analysts say that mainland manufacturers are poised to dominate the Taiwan 3G market in the early stages of its development because the competition there is currently sparse.

"We have been in contact with several Taiwan telecoms operators about getting into the market," says an anonymous Huawei official.

He says that the company is scheduled to provide several products, including handsets based on WCDMA and CDMA technologies, as well as wireless data cards.

"Mainland companies are ready to take advantage of their early involvement to cash in on the emerging market, but the opportunities are limited," says Dai Chunrong, an analyst with China Securities.

"But it will help them to gain experience in 3G development, which will better prepare them for the mainland market," Dai adds.

Analysts say that it will be a challenge for mainland companies to sell their products in Taiwan, because they are unable to conduct direct sales with companies there and must act through their subsidiaries.

Dai believes that handset makers including Huawei, ZTE, Amoi and Bird are likely to adopt low price strategies. This used to be a very effective way for domestic handset manufacturers to jump into new markets.

But the Huawei official says that the company is to unload a full range of products for Taiwan telecoms operators.

"We are not planning to adopt a low price strategy in Taiwan. We will offer high to low-end products in an effort to provide comprehensive services to local subscribers," the official says.

Analysts say that the prices of domestic 3G handsets are very competitive compared to foreign-made phones.

In Singapore, for example, Huawei sells its 3G models for between US$300 and US$400.

"The prices for 3G handsets only vary between different operators because they may be affected by subsidies and different operation procedures," Huawei spokesperson Fu Jun recently told the Economic News Daily.

Prices for 3G phones will also be higher than 2G models because they support a different range of services.

Domestic industry pioneers such as Huawei will undoubtedly influence the development of the mainland market with their price strategy.

Huawei's cheapest 3G phones will be priced between US$100 and US$300. Their cheapest products will mainly appeal to the Chinese market, because they will enable subscribers and regions to directly migrate to 3G services.

ZTE's 3G terminals and wireless data cards will be similarly priced. Mainland products are generally about 20 per cent cheaper than foreign brands.

"Most 3G-enabled handsets will range between 1,500 yuan (US$185) to 3,000 yuan (US$370)," says Chen Jinqiao, director of the China Academy of Telecommunications Research under the Ministry of Information Industry (MII).

"The 3G handsets won't be very profitable. The production process takes too long and there will be too many competitors," he says.

Huang Jin, general manager of consulting at CCID Ltd, says that the prices of 3G phones will stay relatively low and that the transition from the old technology to the new will be fairly smooth.

"The increased competition in the handset manufacturing industry also makes it impossible to set high prices for 3G phones," Huang adds.

Chen says market developments will also play a role. "There will be mergers and acquisitions. Things will reshuffle and there will eventually be closer co-operation between handset manufacturers and operators," he says.

But he admits that the opportunities in the 3G market are huge for Chinese mobile phone manufacturers because they have been catching up with foreign competitors on a technological level.

"The home-grown TD-SCDMA technology is a good example. Domestic companies will have to pay comparatively fewer royalties, which will help cut costs," Chen says.

"Nevertheless, domestic firms should continue to invest more in research and development (R&D) because their technology is still quite behind."

He says that foreign brands will continue to dominate the domestic handset market over the next two to three years.

According to a report by US-based technology research firm Gartner Group, sales of 3G phones will reach 100 million next year. That figure is likely to double to 200 million by 2008.

It is expected that handset giants such as Nokia, Motorola, Samsung, LG, Sony Ercisson, Siemens and BenQ are likely to benefit from the strong market demand.

Those manufacturers whose annual sales are under 10 million feel the pressure, Gartner says in a statement.

The organization also projects that by the end of 2009, the average price for handsets will decline from the current US$174 to US$161.

Many foreign telecoms equipment providers are now strengthening their efforts to capitalize on the 3G market by focusing on all the related services, rather than just handsets.

Government figures show that China is now the world's largest telecommunications market. By the end of June this year, there were 363.16 million mobile phone subscribers and 337.43 million fixed-line users across the country, according to the MII.

Many foreign players are establishing research labs on the mainland in anticipation of the emerging Chinese 3G market.

In April Motorola announced the establishment of a new 3G R&D centre in Beijing.

"China is an incredible opportunity and we will continue to invest in R&D and factories here," says Ed Zander, Motorola's chairman and chief executive officer.

"We expect high growth in the Asia Pacific region and especially in the Chinese market."

Motorola has invested more than US$450 million in 16 R&D centres across China.

The new centre is to focus on the development of global 3G network solutions and will provide direct support for Chinese customers once 3G services are launched.

Motorola's competitors in China, including Nokia, Ericsson and Siemens, are all establishing 3G-related R&D facilities on the mainland.

In June, Siemens opened a software development centre in Hangzhou, capital of East China's Zhejiang Province, as part of its drive to further penetrate the country's emerging 3G mobile communications market.

The 300 million yuan (US$37 million) centre will focus on developing data applications for future 3G mobile networks and billing systems for convergent networks.

The move came just after Siemens Communications Group sold its floundering handset business to Taiwan's BenQ, underscoring the firm's strategic shift to the more profitable telecoms network business.

The centre will work closely with Chinese mobile operators and local universities to tailor products for the Chinese market, says Christoph Caselitz, president of Siemens Communications Mobile Networks.

Siemens is already operating three software development centres in Nanjing, capital of East China's Jiangsu Province, Beijing and Shanghai.

Ericsson has eight R&D centres and Nokia has two in Hangzhou and Chengdu, capital of Southwest China's Sichuan Province.

(China Daily 08/22/2005 page6)