Wednesday November 4, 01:10 AM

China 3G stirs up mobile Internet frenzy

By Melanie Lee and Doug Young

BEIJING/HONG KONG (Reuters) - China's recent roll out of 3G mobile services is creating a land grab among its Internet firms, old and new alike, salivating over a mobile Internet market the size of the U.S. and Europe combined.

China's introduction from mid-year of third-generation (3G) mobile services, which allow for easy Web surfing over mobile phones, poses a huge business opportunity for both foreign and Chinese companies, from content developers to game operators and providers of other mobile services.

But embedded with that also lies the risks that 3G services could be slow to take off among the nation's 720 million cellular subscribers, that mobile carriers could try to take a big slice of the pie or that Beijing censors could limit or even ban certain kinds of content and mobile Web sites.

"We feel that the expansion of mobile Internet applications and services development needs new product innovation," Feng Zhou, a senior vice president at online game developer NetEase, showcasing his company's new online Internet offerings at a major Internet conference this week in Beijing.

NetEase is being joined in the mobile Internet rush by the likes of Baidu and Google, China's two biggest search engines, all hoping to capitalise on a market expected to rapidly grow to be worth billions of dollars in just a few years.

Also in the fray are start-ups like venture-funded UCWeb, which has developed an Internet browser optimised for use over mobile phones.

Many of those were talking up some of their upcoming offerings at the Beijing show.

NetEase's Feng said his company will focus on three mobile Internet areas: augmented reality, which allows users to conduct searches based on mobile phone photos; mobile language translators; and barcode scanning.

GOVERNMENT, TECHNOLOGY PITFALLS

But the same huge growth potential the market offers also comes with a number of potential pitfalls, which are numerous in China's tightly controlled media market.

One of those -- the whimsical and unpredictable hand of government oversight -- was showcased on Monday when NetEase said that one of its popular online game titles was being shut down for the moment by a government regulator, a move that many attributed to a government turf battle.

Such battles aside, firms will also have to steer clear of government censors who crack down periodically on content that Beijing finds controversial.

Google discovered that danger earlier this year when it was caught up in a controversy involving content available over its site that Beijing considered pornographic.

"This is different from operating businesses in the U.S. or Europe," UCWeb chief executive Yu Yongfu said of the latest NetEase controversy. "For Chinese businesses expanding in China, we need to learn how to operate suitably in the environment in order to thrive and survive."

One other risk could come from the mobile carriers themselves, who are rolling out untested 3G systems that may not be embraced by consumers. Carriers could also try to step in themselves to take a big slice of the mobile Internet pie.

One of the biggest question marks remains the nation's biggest carrier, China Mobile, whose 3G system is based on a homegrown technology called TD-SCDMA, which has encountered numerous teething problems and has been slow to find subscribers audience in its early days.

China Mobile has 500 million of China's mobile subscribers, about two-thirds of the market, with the vast majority using older 2G services. The nation's other two mobile carriers, China Unicom and China Telecom control the rest.

(Reporting by Melanie Lee; Editing by Jon Loades-Carter)