3G mobile phone market in China is a booming mobile phone market, and there are three main players - China Mobile, China Union and China Telecom - in the playground. The competition among them reach a cruel level.

As a newbie to China's 3G mobile phone market, "going cheap" is the only way available for fixed-line dominator China Telecom to extend its market share in the newest sector in China. In a purchasing agreement signed this week, China Telecom is aiming to attract more grassroots consumers by selling 3G handsets at entry-level prices. China Telecom will sell 3G phones starting at $73 each by the end of this month.

China Telecom has ordered 4 million 3G handsets from 31 firms, including the Hong Kong and Shenzhen dual-listed ZTE Corp, South Korea's Samsung and domestic cell phone producer Coolpad, Shanghai Daily reported Wednesday.

The multi-billion yuan order, which includes 63 different customized models for China Telecom's CDMA-2000 (code division multiple access) system, are priced mostly around 1,000 yuan ($146). The cheapest entry-level phones, sold at 500 yuan, will be on the shelves by the end of this month, another state-owned newspaper, China Daily, said.

China Telecom initially planned to buy 3.6 million in its latest procurement round, but after receiving proposals for 200 models from over 60 cell phone makers, China Telecom ended up buying 4 million mobile phones in a sale and purchase agreement with the country's top four distributors and 31 manufacturers.

At present, most of China Telecom's 3G phones are priced in a range from 1,000 yuan to 3,000 yuan ($438). The debut of cheaper handsets at bargain prices "will help us expand into the entry-level market and diversify our portfolio," Shanghai Daily quoted Yang Xiaowei, China Telecom's vice president, as saying.

China Telecom was granted a long-awaited 3G license together with its rivals China Mobile and China Unicom in January this year.

Despite the Chinese government's intention to greatly develop its 3G market, the lack of handsets designed especially for China's unique 3G network has been blocking telecom operators from growing their 3G business.

China Telecom signed its latest purchasing orders on the same day when its biggest rival, China Mobile, inked a deal with Taiwan's smart phone maker HTC to develop at least one model of Ophone this year, and 6 other models in 2010.

The mobile market in China has long been dominated by China Mobile, the world's largest mobile operator by subscriber base, which controlled 74% of China's mobile market as of April this year, according to a study by research company Ovum.

China Telecom announced earlier that subscribers to its standard 3G mobile services grew 2.45 million in July, the biggest increase so far this year and the seventh consecutive positive growth month.

But analysts are not optimistic that China Telecom can achieve its target of reaching 100 million mobile subscribers by 2011.

Because China Telecom is a relatively inexperienced and smaller mobile player in China, with only 5% share of China's mobile market, to expand its 3G service into the high-income cities such as Beijing and Shanghai where China Mobile and China Unicom are strong is a tough task, especially because there is a lack of mobile phone number portability, said Raymond Yu, a telecom analyst with Ovum.

"Therefore we suspect that the rural market will take higher priority in China Telecom's mobile strategy in 2010 and 2011. However, China Mobile's dominance in China's rural market means that even capturing new mobile customers will be a difficult battle for China Telecom," Yu added.

China Telecom is scheduled to announce its earnings on Thursday. In a research report, Tim Smart and Bin Liu of Macquarie Group downgraded China Telecom to "Neutral" from "Over Performance."

Macquarie's analysts saw risks in the near term and said the lack of cheap CDMA EVDO handsets has been a bottleneck for China Telcom's mobile services growth. That will force the operator to subsidize handset production more if it wants to expand its business. "The result of this is that in order to achieve company 30 million subscriber additions target, handset subsidies are likely to exceed the previous target of 30% of service revenues. Subsidies of 35-40% now appear a more likely outcome," Macquarie predicted.

Let's wait for several monthes to see the result of China Telecom's Price War.