>> Debate Over CDMA Future Hinders Unicom
William Kazer
South China Morning Post
June 21, 2000
China Unicom is no stranger to controversy. In its six-year history, the mainland's number-two telecommunications operator has earned a reputation for revolving-door management, broken promises and angry disputes with its foreign partners.
But one of the most controversial issues for the company, which lists in New York on Wednesday and in Hong Kong on Thursday, has been the proposed deployment of code division multiple access (CDMA) technology, a US-developed standard, for its mobile phone system.
Mainland China's use of CDMA technology has been part of a high-stakes poker game that centred on Beijing's campaign to join the World Trade Organisation.
Sometimes, the arguments for and against CDMA bore little relation to the merits of the technology.
Was CDMA ever a serious rival to the world's leading standard, GSM - global system for mobile communications?
Consensus Around Competing Standard
Detractors insist it should not have been given a chance, likening the US position to its reluctance to embrace the metric system - doggedly holding out for its own standard despite a growing consensus around a competing standard.
Some are even more derisive.
"I call it son of Iridium," said Duncan Clark, head of consultants BDA (China) referring to the satellite phone system that became one of the most spectacular market failures.
Others view it somewhat more charitably.
"It was seen as a useful technology at first," said a long-time China watcher who declined to be identified.
"It then became a political issue. [Premier] Zhu Rongji saw it as useful in the WTO negotiations."
GSM is far and away the leading standard worldwide, with 300 million users compared to 57 million CDMA customers, mainly in the United States, Canada and South Korea. The US has other standards in addition to CDMA.
Mainland Firmly In Gsm Camp
The mainland is firmly in the GSM camp - it is the largest GSM market in the world.
The US pushed hard for adoption of a narrow-band version of CDMA, developed by Qualcomm of California, hoping that at least part of the huge mainland market could be captured for this already available technology.
Beijing promised the US it would adopt CDMA and China United Telecommunications, parent of the soon-to-be-listed China Unicom, was to be the vehicle to put it into use.
The company will have the option to acquire the CDMA network from its parent company.
But a deal on WTO proved elusive. During a visit to the US last year, Mr Zhu failed to win US backing for the mainland's entry to the world trade body.
Nato's bombing of China's embassy in Belgrade - and the violent demonstrations that ensued on the mainland afterwards - poisoned the atmosphere, sidetracking the WTO talks for months.
An agreement with the US on WTO late last year appeared to have put the issue to rest.
However, in February Qualcomm announced it had reached a framework agreement with Unicom on the use of CDMA in the mainland, but within days the company ran into problems over the amount of technology to be produced in China.
Waiting For Third-Generation CDMA
The mainland has since said it would wait for the third generation (3G) standard of CDMA which is under development and promises to allow fast access to video images and the Internet.
Unicom has since said it would focus on expanding its GSM system, spending US$3.48 billion on that goal this year.
"They [Chinese authorities] went with a poor technology and then dropped it after they got WTO. Do we express 'shock, horror' or do we say 'of course'?" Mr Clark asked.
Some of the GSM handsets in use in the mainland are made by Chinese manufacturers but the infrastructure is largely supplied by foreign-based companies.
Beijing wants to ensure Chinese firms take a bigger role in manufacturing for the next generation of mobile-phone technology.
Qualcomm has signed licensing agreements with eight mainland companies to conduct research and development using the technology.
This is where the money will be made in future.
Not every foreign businessman is applauding.
"When you strip away the veneer of nationalism, what you have left is just plain greed," said one foreign observer.
"Whatever happened to the concept that the one who develops the technology gets the greatest benefit?"
While the core technology of 3G is from Qualcomm, there are various versions of it, such as CDMA2000 or WCDMA.
More Royalties From CDMA2000
Qualcomm would earn more in royalties with CDMA2000 while other versions would dilute its income due to greater use of outside technology.
Unicom officials said they planned to use CDMA2000 but other industry officials said that issue had not been resolved altogether.
The industry regulator, the Ministry of Information Industry, will probably have a major voice in determining which is used.
One of the issues in the debate has been that the 3G standard would soon be available and there was little reason to spend heavily on an old technology.
However, CDMA supporters said the strategy of their opponents was to delay implementation as long as possible.
"It's like putting lunch off until three in the afternoon and then wondering 'should I eat now or just wait for dinner'," said a CDMA backer.
Another complication was the position of the People's Liberation Army, which was supposed to have retreated from the business front to concentrate on national defence.
The army had four "trial" CDMA systems that were of commercial scale and it had hopes these would be given the green light for market entry.
Lack of PLA Support A Blow
As the government cracked down on the army's business interests, the path for CDMA grew tougher. Without the PLA's backing there was one less powerful interest group in the mainland pushing for implementation.
Regardless of which technology ultimately wins out, the issue for public investors in Unicom will be whether the number two operator can take market share away from the industry leader, China Mobile.
Unicom has said it now has 10 million customers, giving it about a 17 per cent share of the mainland's mobile-phone market.
It hopes to increase that by 20 per cent within a year but cannot afford to do so simply by price-cutting, thus slashing revenue.
If Unicom fails to deliver market share, the heated debate over technology will have been a time-consuming sideshow.
Copyright ¸ 2000 - South China Morning Post Publishers Ltd. <<
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