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I was disappointed, but certainly not surprised to read that homegrown telecoms equipment giants Huawei and ZTE (OTCPK:ZTCOY, HKEx: 763; Shenzhen: 000063) won the big majority of a major new batch of contracts from dominant wireless carrier China Mobile (HKEx: 941; NYSE: CHL) to build its 4G network. Regular readers will know that I'm a strong advocate of free trade, and believe that Chinese and western equipment sellers should receive 4G contracts in any country roughly in line with their global market share. But in China such major purchasing often has a political element, especially when the buyer is a state-run company, which is clearly the case here.

The news isn't all necessarily bad for European equipment makers Ericsson (Stockholm: ERICb), Alcatel-Lucent (ALU, Paris: ALUA) and Nokia Solutions Networks, which were all the clear losers in the second major round of bidding for 4G contracts from China Mobile. That's because that trio could fare better in China later this year when the nation's other 2 telcos start building 4G networks, which I'll elaborate on shortly.

But for now at least, the European sellers must surely be disappointed at the latest tender results that included billions of dollars in new contracts. According to the latest media reports, ZTE and Huawei received 34 percent and 31 percent, respectively, of the awards in the latest round of 4G contracts from China Mobile (English article). By comparison, Ericsson and Alcatel-Lucent each won 9 percent, and Nokia received just 8 percent.

This latest batch of contracts represents about 40 percent of the awards that China Mobile will give out this year, involving the construction of about 100,000 base stations. So that means the carrier will give awards for another 160,000 base stations later in the year, which means the foreign suppliers could fare better in later bidding rounds.

But based on China Mobile's record so far, I wouldn't expect the results to vary too much. Back in August, China Mobile also gave more than half of its first big batch of 4G contracts to the Chinese manufacturers, with Huawei and ZTE each receiving about a quarter of the awards. The European suppliers got about 10 percent each in that round (previous post).

The telecoms equipment space has become extremely politicized over the last 2 years, leading to this kind of lopsided and politicized contract awarding pattern. The Chinese suppliers are a non-existent force in the US.,. after Washington banned them over national security concerns. Huawei and ZTE are also facing pressure in Europe, where the EU's leading trade official has accused them of getting unfair government support and is threatening retaliatory actions.

The biggest victims in all of this are the telecoms equipment makers themselves, which are being limited to individual markets based on political factors rather than commercial ones. While Washington's concerns over national security and Europe's over unfair subsidies are understandable to some extent, there must surely be a better way to overcome this kind of problem.

All that said, there's still a glimmer of hope ahead for the western equipment suppliers in China in the months ahead. That's because China's 2 smaller telcos, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) are likely to receive new 4G licenses in the next month to build networks based on the globally popular standard called FDD-LTE (previous post).

By comparison, China Mobile's 4G network is based on a homegrown standard called TD-LTE, and it's widely accepted that Huawei and ZTE have been more aggressive about developing products for that technology. We'll have to wait and see what happens after the FDD-LTE licenses are awarded, as I do expect Unicom and China Telecom will put out major requests for bids soon afterwards. When that happens, I would expect the European suppliers to get a share of contracts more in line with their global market share, which would send a positive signal that China wants to de-politicize the issue.

Bottom line: Poor results for the western telecoms equipment makers in China Mobile's latest 4G awards show the issue is still politicized, though the situation could improve later this year.

Disclosure: No positions

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Source: Huawei, ZTE Trounce Competition In New 4G Awards