China's largest telco equipment maker is promising four or five TD-SCDMA handsets this quarter, among which the low-priced (cheap) T2211 will be Rmb1000. Huawei, as well as cross-town rival ZTE, have started cranking out some pretty decent mid-range smartphones recently (think T-Mobile's Pulse), but when they go cheap, it, well, looks cheap. So while we are optimisitc about the TD-based Ophone, we don't think sub-Rmb1000 TD phones will do much for China Mobile.

If you have any doubts about how these guys do cheap phones, take a look at the sub-Rmb1000 TD phones from China Mobile: ZTE's U210 or U85; or Huawei's S660. The only decent one out there is Tianyu's K-Touch E500. Even's Moto's L800T design is lacking. Maybe Huawei will surprise us, but we remain skeptical for the time being.

For the OPhone, however, that's a differnt story. The look of Huawei's Pulse (US$292 on T-Mobile) is cool, and we hope they can replicate it for China's TD standard. Huawei said its first OPhone will be finished by Q1 of 2010 and released in April, 2010. ZTE is also working on Android and Windows-based phones for the TD standard. It looks like China Mobile is finally seeing some results from its decision to subsidize handset R&D for telco equipment providers.

China Mobile's OPhone runs Open Mobile System (OMS), the proprietary operating system of China Mobile, which is based on the source code of Google's Android. It comes with a handful of China Mobile applications, including multimedia short messaging, an online application store, email, music, and GPS. It's basically an iPhone clone, with a big touchscreen and without a QWERTY keyboard.

Next year, there will be alot more Rmb800-Rmb1000 smartphones coming out as Taiwan's Mediatek begins shipping its new smartphone platform. It offers a low-cost, turnkey solution for smartphones using Microsoft's Windows Mobile 6.5. So far, Mediatek hasn't released any concrete plans for a TD-based solution. If Mediatek moves in this direction, it woud be a big boost for China Mobile, which needs as much help as it can get, given the inauspicious start to its TD-SCDMA rollout. We estimate it will bring in less than 2.5 million 3G subs this year, far from the early estimates of 10 million or more.

SHAMELESS PLUG: RedTech Advisors offers research, investment and strategy services in China. For more info, please see www.redtechadvisors.com.