A China-based joint venture between Nokia and Potevio, formally known as China Putian Corp, is expected to start production of 3G (third generation) mobile telecoms network equipment in the first quarter of next year.

But a scandal hitting Siemens, which has been planning to merge its network business with that of Nokia, could add an element of uncertainty to the Nokia-Potevio joint venture, based in Wuhan, the capital of Central China's Hubei Province.

With an investment of 900 million yuan (US$115 million), Nokia and Potevio signed a deal in October 2005 to form the 51-49 joint venture to jointly develop 3G mobile telecoms equipment based on the China's home-grown TD-SCDMA standard and European-initiated WCDMA.

The two firms had expected the joint venture to start production in 2006, but the establishment of the joint venture has been dogged by some legal issues. The National Development and Reform Commission gave the nod to the establishment of the joint venture in May.

Tao Xiongqiang, vice-president of Potevio and chairman of the Nokia-Potevio joint venture, said he hoped the venture could start manufacturing 3G equipment in the first quarter of next year at the earliest.

"The factory is already up and we will soon move our staff and equipment into the factory," he said.

But the joint venture may become a casualty of an ongoing bribery investigation involving Siemens. Nokia and Siemens had agreed to combine their network businesses, to create a new company called Nokia-Siemens Networks, which was supposed to be finalized on January 1, 2007.

Last month, Munich prosecutors started a probe into six current and former Siemens employees, alleging they committed breach of trust against Siemens by setting up secret funds.

Due to the investigation into some 429 million euros (US$566 million) in suspicious payments, Nokia and Siemens have decided to postpone the establishment of their joint venture.

"That is creating some uncertainties (for the joint venture between Potevio and Nokia)," said Tao.

Nokia has been betting on the joint venture with Potevio to get a share of the TD-SCDMA market in China. Some industry observers expect TD-SCDMA to account for about one-third of China's 3G market.

TD-SCDMA has been lagging behind WCDMA and the US-backed 3G standard, CDMA 2000. But the Chinese standard has gained significant momentum in recent months.

Last week, a TD-SCDMA project by Datang Mobile, the major developer of the standard, passed an evaluation by the Ministry of Information Industry (MII), which said the commercial availability of TD-SCDMA had been verified.

Potevio will undergo a similar evaluation by the MII on Thursday, Tao said. Potevio's TD-SCDMA equipment is manufactured by its subsidiary EastCom, based in Hangzhou, the capital of East China's Zhejiang Province.

Siemens already established a joint venture, TD Tech, with China's Huawei Technologies to develop TD-SCDMA technologies. That could also jeopardize the Nokia-Potevio joint venture as Nokia-Siemens Networks, if established, may have to decide whether to merge the two China-based joint ventures.

Tao said TD-SCDMA is "basically mature," despite some minor problems such as inadequate mobile phones supporting the telephony, as well as inadequate interoperability between different terminals.