3G MANIA: A mobile user walks by an advertisement of 3G services from China Unicom called "WO" in Nanjing, Jiangsu Province (CFP)

Despite wide network coverage, China Telecom will face an uphill battle because the mid-to-high-end customers in big cities have already been won over by China Mobile and China Unicom, said Wang Liusheng, an analyst with the Beijing-based Analysys International Consulting Co. Ltd.

One countermeasure of China Telecom was to step up cheaper smartphones and service packages, which intensified price competition in the industry, said Wang.

Profit woes

As telecom giants continue to ride the 3G wave, one concern lingers for them—the investments in 3G networks and product promotions are taking a big bite out of their profits.

China Mobile raked in profits of 25.5 billion yuan ($3.7 billion) in the first quarter this year, representing a modest increase of 1.1 percent year on year, a record low on a quarterly basis.

The pains of its competitors were no less acute: China Unicom reported a profit of 1.1 billion yuan ($161.1 million) from January to March, a sharp drop of 68.3 percent; and the profit of China Telecom fell 9.1 percent to 4.3 billion yuan ($630 million).

There is no surprise that their road to profitability will be a bumpy ride. Overseas 3G networks have been in commercial use for around 10 years, but almost none bring profits to their carriers except in Japan due to heavy network costs. Even the Hutchison Whampoa of Hong Kong, one of the first operators in the world to start 3G businesses, is still spilling red ink after eight years of development.

The mounting financial pressure will force the carriers to trim their capital expenditures this year, and they are likely to focus more on attracting upper-bracket users who can generate more revenue, said Huang Wenge, an analyst at the Shenzhen-based Essence Securities Co. Ltd.

"But the start-up investments will eventually pay off," said Huang. "As Chinese consumers gain interest in value-added services, the 3G businesses will become a significant component, if not a pillar force, for the telecom industry."