Chinese telecom operators will start awarding contracts for super-fast mobile networks this year, kicking off the third wave of a global investment cycle that is reshaping the competitive landscape among telecom equipment makers.
China, the world's biggest mobile market with 1.1 billion subscribers, is likely to further alter the picture at the expense of European suppliers by giving a huge boost to Huawei and its smaller Chinese rival ZTE.
Huawei already took a chunk of Europe's fourth generation mobile contracts last year, so another big win for it could be especially tough for middle of the pack gear makers like Nokia-Siemens Networks and Alcatel-Lucent. Both have struggled to combat Chinese competition and generate steady profits since being formed in mergers in 2006.
"China will blow everything else away in terms of volume this year," said David Geary, head of Alcatel-Lucent's wireless division.
Sweden's Ericsson currently has the biggest slice of the global mobile equipment market with around 35 percent, while Huawei has 17 percent, NSN 15 percent and Alcatel-Lucent 12 percent. The first wave of 4G investments that began in 2010 in Japan and Korea favored Ericsson and NSN, and saw the arrival of newcomer Samsung, while the second in the U.S. went largely to Ericsson and Alcatel-Lucent.
But even vendors that have done well in 4G so far need a China boost given the weak outlook for network gear this year.
Research firm Gartner sees network equipment sales up 2.3 percent to $79 billion in 2013 after a contraction last year.
China's three mobile operators - China Mobile, China Unicom and China Telecom - plan to spend a combined 345 billion yuan ($56 billion) this year on network upgrades. That includes investment in 4G, which multiplies mobile broadband speeds by up to five times for users of Apple Inc's iPhones or Samsung Electronics' Galaxy phones.
China Mobile will open the competition with a massive contract. It plans to plough 41.7 billion yuan ($6.75 billion) this year into 200,000 4G base stations in order to provide services for its 710 million customers - more than twice as many as there are people in the U.S.
Whether Europe-based network providers can grab a sizeable piece of that depends largely on whether the process for awarding 4G contracts in China follows the pattern set for the 3G ones, say analysts. Then, Huawei and ZTE gained a massive presence in local carriers' networks in part because of implicit government pressure to support local companies.
Senior sector executives are also worried that foreign companies' bids to win China business could also be complicated by a brewing trade spat with the European Union about whether Huawei and ZTE benefit from unfair trade subsidies.
In past generations of mobile technology, telecom operators have often favored bids from the gear vendors that already supply them because it simplifies the upgrades and reduces costs.
Ericsson, Huawei, and NSN have surfed this trend, especially popular with Europe's cost-conscious operators, by offering multi-standard radio technology in which a single base station can handle 2G, 3G and 4G traffic.
Challengers including Samsung and Alcatel-Lucent, who have limited market share in 3G, are instead pitching so-called overlay 4G technology that is built from scratch on top of old networks.
How the competition between these products will play out in China, where the market is further complicated by the presence of two local standards known as TDD and FDD, remains to be seen.
But many analysts believe that Huawei and ZTE - already big suppliers of China Mobile since only 10-15 percent of 3G network contracts went to foreign vendors - will be winners, leaving the others to fight for smaller bits of the pie.
Michael Li, an analyst at China Everbright Research, predicted 60-70 percent of China's Mobile's 4G projects would go to Chinese because the bulk will be upgrades based on the current frequencies.
Peter Zhou, chief operating officer of Huawei's LTE business, said commercial discussions would start after June in China and predicted that Huawei would come out ahead in the global race for 4G leadership.
"I think that our single RAN (radio access network) focus since 2006 will assure our success," said Zhou. "Our customers when they choose a vendor they do not only think about price but rather the total cost of operating the network over time."
In trials for China Mobile, Huawei and ZTE have done the most pilots, followed by Alcatel-Lucent with 14.5 percent, according to IHS iSuppli. Ericsson and Nokia Siemens got just 8 and 7 percent of the trial business respectively.
Alcatel - along with Samsung, which is diversifying into networks from its stronghold in smartphones and TVs - is counting on beating the competition by persuading Chinese clients that single radio access network is not the way forward. Both Alcatel and Samsung hope to show Chinese clients that 4G networks with new technologies can be built faster and with lower operating costs.
For Alcatel-Lucent, which has swung back to net losses in the past four quarters and just replaced its CEO, China will be particularly key to the second half of the year. "We have a strong foundation in what will be the largest 4G opportunity in the world in the coming years," Geary said of China Mobile trials.
"Single RAN is one of the trends in the market, especially in Europe," I.P. Hong, head of global marketing in Samsung's Networks Business said in a statement. "However, if you look into large-scale LTE deployments in the U.S., Japan and Korea, most of them are overlay networks on top of existing technologies."
One CEO of a northern European operator, who did not want to be named because of the sensitivity of disclosing business information, agreed that there were significant cost advantages in awarding contracts to new network vendors.
"Prices for equipment have come down so much it is often cheaper for the new vendor to change out all the old equipment than to upgrade the site with new equipment," he said.
(Additional reporting by Chyen Yee Lee and Yimou Lee in Hong Kong; Editing by Sophie Walker)