The number of mobile phone users in China, the world's largest mobile phone market, is expected to double by 2007 to 500 million from around 250 million at present, said George Huang, vice president of Nortel Networks (China) Ltd., a unit of Nortel Networks.

"Four to five million new subscribers are added each month.That's a significant growth and there's no such growth in the world like this for mobile users," Huang told reporters on the sidelines of a 3G World Congress conference in Bangkok Friday.

He said the penetration rate in China was currently low at around 20 percent and there was substantial room for the Chinese market to grow.

China's mobile phone market is expected to enter the maturity stage in the next four years when the penetration rate reaches around 50 percent.

"There's some more years for China to go," said Huang.

Despite the expected growth in coming years, one of the most challenging tasks for mobile operators in China is how to maintain their average revenue per unit, or ARPU, said Huang.

Most of the high-end customers have already subscribed to mobile services while new subscribers are mostly low-end prepaid customers that dragged ARPU down to around US$12 per month currently from US$20 in previous years.

"The key thing is how to drive additional ARPU, that's the main objective of all operators in China right now," said Huang.

One possible solution for Chinese phone operators to drive up ARPU is to push ahead for the migration to third-generation (3G) mobile phone services from 2G currently.

3G is touted as the future of mobile communications, with the ability to support large multimedia data transfers and other functions at high speeds.

However, operators wishing to launch 3G services must still serve the majority of voice applications as most of new subscribers would still be voice-centric with limited purchasing power.

Two of China's four major mobile phone operators ---- China Mobile Communications Corp. and China United Telecommunications Corp. ---- are not rushing to push ahead with 3G migration as their existing 2G services are doing quite well.

"But China Telecom and China Netcom urgently need to get 3G mobile licenses because their fixed line ARPU is even worse than that of their mobile services, so they need to find new sources of revenue," said Huang.

China Telecom Group is the dominant fixed-line operator and China Netcom is the country's second largest fixed-line operator, currently heading for an initial public offering.

China Mobile, which lists part of its assets in New York and Hong Kong as China Mobile (Hong Kong), currently has a 60 percent market share through its GSM network.

The remainder is controlled by a mix of global system for mobile communications (GSM) and code division multiple access (CDMA) networks rolled out by State-run China United Telecommunications Corp., which lists part of its assets as China Unicom in New York and Hong Kong.

China has yet to issue licenses for 3G systems or decide the technology standards that would be endorsed.

Chinese regulators are considering three technologies as the standard for the country's 3G networks and mobile phones: Qualcomm Inc.'s CDMA2000 and wideband CDMA, which is backed by Nokia Corp. of Finland.

China has also developed a homegrown standard TD-SCDMA, or time division-synchronous code division multiple access.

"They will probably go for one of the two (international standards) plus TD-SCDMA," said Huang.

Industry regulators have hinted that the licenses are not likely to be given out until late next year to allow more time to complete field trials.

Nortel is ready to provide services to serve any of the standards once the choice has been made.

"Either way is fine with Nortel, we're well positioned," said Huang.

Nortel Networks contract awards in China span wireless, wireline, optical and enterprise solutions. Its customers include China Telecom, China Unicom, China Netcom, China Railcom, China Mobile, and enterprises in the government, finance, education and utilities sectors.

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