hehe, QCOM might be doomed. -- China seeks to call shots in setting cellphone standards
Competition worries western providers
Peter S. Goodman
The Washington Post
Tuesday, August 05, 2003
China, the world's largest market for cellphones, is aggressively developing a homegrown technology that can run the next generation of mobile telephone networks, challenging the traditional dominance of American and European companies.
During the 1990s, as China poured some $10 billion US into erecting a national mobile telephone network, foreign companies reaped most of the rewards. Cisco Systems, Ericsson, Motorola and Nokia produced much of the equipment that runs the networks and many of the phones on them. Now, the country is planning for what's known as third-generation mobile services, or 3G, upgrading its networks to beam high-speed Internet connections to phones and hand-held computers.
If China develops its own 3G standard, it could save on the royalties it would otherwise have to pay foreign firms for their gear -- a tab that reportedly runs into the hundreds of millions of dollars. And if China's standard gained favour abroad, its companies could then collect royalties from foreign counterparts. Not least, Chinese firms would probably enjoy built-in cost advantages given the scale of their home market.
"If we use an overseas standard, then the technology is controlled by foreign manufacturers," said Hua Yang, secretary general of the TD-SCDMA Industry Alliance, a consortium of Chinese technology companies led by Datang Telecom that was forged last fall to test and market the new standard. "If China has its own standard, then the domestic enterprises can master the technology by themselves, so they can be at the same competitive level with overseas manufacturers."
China's push to develop mobile phone technology comes as the government is pressing the creation of a homegrown standard for high-definition television and is the latest sign that the world's most populous country is seeking to leverage its scale to the advantage of Chinese companies.
"This is China saying we have to build our own intellectual property," said Johan Pross, chief executive of T3G Technology Co., a venture forged this year by Datang Telecom with Korean electronics giant Samsung and the Dutch company Royal Philips Electronics to develop chips that run on the new technology. "China is realizing that you cannot only rely on the fact that your labour is cheap. China has a lot of manufacturing already, and they want to be in on the innovation part."
The stakes are potentially enormous. In China, construction of 3G networks and the manufacturing of new phones could absorb some $8 billion over the first three years alone, according to Edison Lee, an Asia telecommunications researcher at J.P. Morgan in Hong Kong.
In the rest of the world, 3G has become synonymous with diminished expectations and financial peril. European mobile phone companies sank billions of dollars into gaining licenses to build networks in 2001, and they have counted little in return besides mounting debt, imposing construction costs and tepid consumer response.
China avoided such pitfalls by moving slowly. It has yet to even issue licenses for the new services -- something expected to happen later this year. Where other governments saw 3G as a potential bonanza for state coffers, China's government aims to use the advent of the services and the capital spending they require to generate business opportunities for domestic companies.
Already, Chinese telecommunications equipment firms such as Huawei Technologies Co., ZTE Corp. and Datang are carving into the business of established foreign giants. In a sign of the stakes, Cisco recently sued Huawei for allegedly stealing some of its code and building it into Huawei products.
In the United States, Europe, Japan and Korea, third-generation networks are being planned or have already been erected using two established technologies -- WCDMA, whose production is dominated by European telecom companies, and CDMA2000, a creation of San Diego-based Qualcomm Inc. Both standards are variants of a basic means of routing phone calls through the skies known as CDMA, or Code Division Multiple Access. It allows people to speak to one another over the same slice of radio frequency by using special codes that effectively block out the sounds of other conversations.
The standard being developed in China, TD-SCDMA, is a third version of this basic technique. It was first developed by the German electronics firm Siemens AG but shelved when it failed to catch on in Europe. Now, T3G, the venture launched in January, is developing chips that run on the standard.
It aims to make money by licensing the technology to other companies.
While the two other two standards are already proven, TD-SCDMA is several years behind. Telephones and network equipment are not expected to be commercially available before 2005, and early testing is now underway.
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