China Unicom May Force Rival Cellular Technologies to Compete
By Miles Weiss
Washington, June 7 (Bloomberg) -- China United Telecommunications Corp. may form separate
companies to deploy rival cellular technologies, essentially pitting U.S. and European standards
against one another.
China United, better known as China Unicom, recently formed one of the two companies by
grouping cellular services for 12 provinces and cities into a single subsidiary. This subsidiary, which
has filed to sell as much as $4.6 billion of stock, uses a wireless standard known as global system for
mobile communications, or GSM.
Meanwhile, the parent company retained its license to offer digital wireless service based on the code
division multiple access standard, an American rival to GSM. And in a regulatory filing for the stock
sale with the U.S. Securities and Exchange Commission, China Unicom outlined a scenario in which
it would transfer this license to a second affiliate that would compete with the publicly traded
company.
Retained License
When forming Unicom Ltd. for the IPO, China Unicom chose not to give the subsidiary its
government license to operate a nationwide CDMA network, according to a registration statement
filed with the SEC. And a Qualcomm spokeswoman confirmed that China Unicom also retained its
license from Qualcomm to use that company's CDMA technology.
China Unicom is exploring the possibility of developing the CDMA business, the SEC filing said. And
other Chinese CDMA cellular service businesses that are under state control may also be transferred
to China Unicom, according to press reports cited in the filing.
If such transfers occur, China Unicom would likely place any businesses it receives, along with the
company's existing CDMA license, into a separate company. ``This separate company would then
compete directly with our GSM cellular business,'' Unicom Ltd. said in the filing.
Establishing CDMA in China wouldn't be easy because much of the country is already using the
GSM standard, said Edward Snyder, a telecommunications analyst for Chase H&Q. Since CDMA
users can't roam in areas that employ GSM, a CDMA company would have to build its infrastructure
throughout the entire country.
``They would be playing a huge game of catch-up with GSM systems that have much better
coverage,'' Snyder said.
Maximum Benefit
Nevertheless, the Chinese in the past have often pitted rival foreigners against one another to obtain
the maximum benefit from each, according to Bodurtha. Examples include the telephone switching
and automobile industries, with companies such as General Motors Corp., Ford Motor Co., and
Volkswagen AG all vying to do business with China.
The situation is made more complicated by the fact that Unicom Ltd., the company holding the stock
sale, has the right to acquire the CDMA license from its parent. Mixing all these possibilities together
creates the type of confusing scenario that the Chinese relish, Bodurtha says.
``The Chinese have a saying,'' according to Bodurtha. ``When the water is very clear it's bad for the
fish.''
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