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China United Network Communications Co Ltd, known as China Unicom, said on Thursday that it has started testing a TD-LTE 4G network, which it will use if the government doesn't allow it to use its favored FDD-LTE technology in the upcoming 4G licensing process.
China's second-biggest mobile operator by subscribers is said to have taken the preemptive action because it expects the government to follow a similar strategy as in its 3G auction, when it first awarded licenses for TD-LTE networks, a technology which is mostly backed by its arch-rival China Mobile Ltd, which has the most subscribers in the country.
The government is widely expected to award 4G licenses before the end of the year. And if it licenses TD-LTE networks first, it will give China Mobile a big edge in the 4G market over its competitors.
After reporting a 55 percent jump in its first-half profit, Chang Xiaobing, the company's chairman, said investment on TD-LTE technology has already started and testing will begin in major cities. Funds will come from Hong Kong-listed China Unicom, rather than from its controlling company China United Network Communications Corp Ltd, which previously funded some of China Unicom's network tests.
"I expect Beijing to license TD-LTE first, so we have to prepare," Chang told a news conference in Hong Kong on Thursday.
Beijing favors TD-LTE, or Time-Division Long-Term Evolution, because the network's core technologies are developed by Chinese companies. The technology was developed specifically for the Chinese market and is expected to serve a quarter of the global market by 2016.
China Unicom's infrastructure mainly supports FDD-LTE, or Frequency Division Duplexing Long-Term Evolution, which is the world's dominant 4G technology. Out of the 156 commercial 4G networks operating around the world in March 2013, 142 were FDD-LTE and 14 were TD-LTE networks. China Mobile operates a FDD-LTE network in Hong Kong and is trying to integrate it with the mainland's TD-LTE market.
Chang said China Unicom's capital expenditure will stay within the full-year budget of 80 billion yuan ($12.96 billion), despite the planned investment in TD-LTE networks.
Media reports said that China Telecom Corp Ltd, the other major operator in China, will rent China Mobile's TD-LTE 4G infrastructure. Chang refused to say if China Unicom will do the same.
China Unicom's first-half profit surged to 5.32 billion yuan compared with 3.43 billion yuan in the same period in 2012. Revenue was up 18.6 percent to 144.3 billion yuan, boosted by a 52 percent increase in income from 3G services to 40.9 billion yuan. The company's 3G subscribers grew a stunning 74 percent to more than 100 million.
China Unicom shares gained 2.67 percent on Thursday. Trading of the stocks was suspended in the afternoon, after the website of the State-owned Asset Supervision and Administration Commission published the company's earnings before they were reported to the Hong Kong stock exchange. China Unicom shares surged after the disclosure at around 3:30 pm.
A China Unicom spokesman apologized for the incident and promised it won't happen again.