The European Union may be trying to protect its telecom equipment industry with its recent threat to investigate China over networking equipment imports. But the move could end up hurting the chances of Western vendors intent on supplying technology to China's upcoming 4G services launch, according to analysts.
Last week, the EU set off fears of a trade war with China after it said it could resort to probing the nation's sales of mobile networking gear for anti-competitive practices. In response, China has warned the EU against taking "protectionist" measures that would damage economic relations between the two governments.
"If the EU insists on starting the investigation, China will follow WTO [World Trade Organization] rules and Chinese law to take resolute measures to protect its rights and interests," said China's Ministry of Commerce spokesman Shen Danyang last Thursday. "The EU, which started the friction, will have to take full responsibility for the resulting consequences."
The EU has yet to launch its investigation, and wants to first negotiate with China over a possible resolution. But the trade tensions risk affecting the tendering process to build China's 4G networks, said Matt Walker, an analyst with research firm Ovum.
The nation's upcoming rollout of 4G commercial services is expected to generate billions in sales for telecommunication equipment vendors. For example, China Mobile, with over 700 million customers, is budgeted to spend 41.8 billion yuan (US$6.7 billion) this year building the infrastructure.
But all three of China's mobile operators are state-owned enterprises, Walker noted, and subject to the government's influence. "The Chinese carriers don't want to be constrained in who they choose, but they're still state-controlled through share holdings, so they are stuck in the political process," he said.
The trade dispute could also push China to forgo adopting in its networks LTE FDD technology (Long-Term Evolution Frequency Division Duplex), a 4G variant European vendors specialize in deploying, said Tina Tian, an analyst with research firm Gartner.
Instead, China could choose to rely on domestic vendors to build its 4G networks using LTE TDD (Time-Division Duplex) technology, also known as TD-LTE. Already, China Mobile is working to launch its 4G services using LTE TDD technology. But so far, a larger share of the projects have gone to Chinese companies than to their Western rivals, she said.
"Chinese vendors specialize more in TD-LTE. Huawei and ZTE have spent more resources on the technology, and they are very fast to deploy, and offer competitive products," Tian said.
The nation's two other mobile carriers, China Unicom and China Telecom, are also expected to launch 4G services. But it is unclear if they will use LTE TDD technology or FDD.
"We thought China Unicom and China Telecom would use LTE FDD. But this trade conflict could cause the 4G licensing to change. This could be a possibility," she said.
European telecommunication equipment vendors such as Alcatel-Lucent and Ericsson have both participated in building trial 4G networks for China Mobile. Alcatel-Lucent declined to comment on the EU's investigation, but Ericsson said in a statement it opposed the action.
"Ericsson is a strong supporter of free trade and we don't believe in this type of unilateral measure," said Ulf Pehrsson, head of the company's government and industry relations. "Our policy is for open, free and unrestricted trade and global supply chains, benefitting users and societies."