China Mobile (CHL) has reportedly entered into a strategic agreement with Taiwan-based High Tech Computer Corp (commonly known as HTC) today to jointly develop 3G smartphones in China. The joint-venture will design and develop handset models (called “Ophones”) based on China Mobile’s home-grown TD-SCDMA 3G technology. The agreement also covers the development of TD-LTE, a 4G mobile broadband technology based network.

HTC, the world’s largest maker of handsets based on Microsoft’s (MSFT) Windows Mobile platform, will develop and supply at least seven 3G handset models by 2010 (including one in 2009). On the other hand, China Mobile will invest RMB47 million ($6.9 million) in the joint-venture and will provide customer service and support. This strategic collaboration will significantly help China Mobile to promote its TD-SCDMA technology in the nascent domestic 3G wireless market.

China Mobile is also exploring opportunities for technology collaboration with other Taiwanese companies such as Chunghwa Telecom (CHT) and MediaTek Inc. Moreover, the company aims to acquire a 12% stake in Far EasTone Telecommunications, Taiwan’s third-largest mobile-phone operator by revenue, for approximately $529 million. This strategic investment will open up an opportunity for network and technology synergies as Far EasTone also plans to develop 3G TD-SCDMA based network.

In addition to the expansion of its 3G TD-SCDMA network, China Mobile is increasingly focusing on developing 3G smartphones to counter competition from Apple Inc’s (AAPL) iPhones. The company’s closest competitor, China Unicom (CHU), is currently negotiating with Apple to bring iPhones to China, potentially in 2009. China Mobile hopes its relatively low-priced smartphones will drive demand for 3G services in China and boost associated subscriber growth.

China Mobile remains the largest wireless carrier in China with approximately 493 million subscribers. However, the company’s share of the new subscribers has dropped recently due to stiff competition from China Unicom and the relatively new wireless player China Telecom (CHA) as they operate more popular international 3G standard-based networks.

The company is investing heavily to expand its 3G TD-SCDMA network footprint in order to achieve the 80 million subscriber target by 2011. China Mobile plans to spend RMB 58.8 billion (US$8.6 billion) on 3G network build-outs in 2009, and aims to deploy approximately 60,000 base stations across 238 cities.

The aggressive 3G deployment plan is expected to further establish China Mobile as the dominant player in the Chinese wireless market. However, the company will continue to face challenges of adaptability and performance of the TD-SCDMA technology, given the faster network speeds offered by competing technologies of its Chinese peers.
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