Cdma, 3G, China>
China proves fertile ground for GSM systems
By Sunray Liu
EE Times
(02/11/99, 4:06 p.m. EDT)
BEIJING — Joint ventures and government policies designed to spur
competition and investment have boosted the prospects for mobile-phone and
chip-set makers here. Indeed, Chinese investment in Global System for
Mobile communications (GSM) systems is so brisk that the government has
moved to license newcomers to the bustling market.
Mobile services now exceed fixed-line service in China, so network
operators see it as an important revenue generator.
In fact, mobile phones have become one of the most important sectors of the
Chinese telecommunications industry, analysts said. Cellular-phone use grew
by more than 11.3 million to nearly 25 million users in 1998, according to the
Ministry of Information Industry (MII) statistics. Most new subscribers used
GSM handsets, the ministry said.
The growth of local wireless networks will likely make China an important
market for DSP and mixed-signal ICs. Competition among leading chip and
product designers like Texas Instruments, Analog Devices, Lucent
Technologies and Siemens is already heating up, observers said.
The fast-paced market is also boosting demand for GSM basestations as well
as handsets. Analysts said the average demand for wireless appliances over
the next two years could include 17 million GSM switches, 900,000
basestations and 15 million handsets.
"The telecom network of China, particularly GSM mobile networks, has been
growing very fast in past years," said Xie Linzhen, vice director of MII's
Department of Electronic and IT Product Management. The "Chinese mobile
network is the third largest in the world, and the Chinese GSM network owns
one-fourth of the global users."
Xie predicted annual growth for GSM will be as high as 13 million users in
the next five years, pushing China ahead of Japan as the second largest
market behind the United States.
Private analysts forecast even greater GSM usage, predicting there will be as
many as 50 million customers by 2000, and more than 200 million by 2010.
The GSM market boom has attracted many investors seeking to get in on the
wireless gold rush, prompting the government to step in last month. MII
decreed that as of Jan. 21, all new GSM projects would require its approval.
The ministry will then take the request to the State Planning and Developing
Committee for further review. "We hope this new policy will let Chinese and
foreign firms make money from the mobile industry by avoiding
overinvestment," said Xie, the MII vice director.
Another goal was to boost the competitive chances of Chinese companies.
Besides assembly, many local companies and research institutions began
evaluating GSM technology several years ago. The first Chinese GSM
switch, basestation and handsets appeared late last year.
China's mobile-communications market began skyrocketing after China
Telecom, which held a virtual monopoly until 1994, launched cellular-phone
service in Canton, Shanghai and Beijing. That network was based on an
analog 900-MHz system, with Motorola's expensive TACS handsets initially
dominating.
In an effort to break China Telecom's monopoly, the State Council of China
issued a second telecommunications license in 1994 to China Unicom, a joint
venture among several ministries and state-owned firms. China Unicom
opted for the European GSM standard in 1995, quickly grabbing customers
from its rival.
China Telecom responded by launching its own, larger GSM network across
China. As competition and technology development grew, prices dropped,
service improved and more subscribers signed up.
Before this year, the handset market belonged to overseas vendors like
Ericsson, Motorola and Nokia. Together, they controlled 80 percent of the
action, with the remainder split among Philips, Sony, NEC, Alcatel, Siemens,
Nortel, Mitsubishi and others.
Together, these firms have established 13 manufacturing plants to make
mobile-phone equipment for China. By 1998, MII estimated these plants
could produce 8 million handsets annually.
The local plants have become increasingly important to overseas companies
as the government cracks down on smuggling and foreign-currency rules.
Such measures, along with new mobile telecommunications policies, have
seen the value of manufacturing plants run by joint ventures or as wholly
owned subsidiaries appreciate in value.
Shenzhen Huawei Technology Co. Ltd. has emerged as one of the largest
telecom equipment suppliers in China. Huawei launched its GSM efforts in
1997, completing trial production by the end of 1998. It invested about $25
million in a production line in Shenzhen, just outside Hong Kong, and expects
to produce 4 million GSM switches plus 50,000 carrier-band basestations
there. Total revenue for these network components is expected to reach
$1.25 billion.
Elsewhere, Datang Telecom (Beijing) and Guangzhou JinPeng Group, near
Shenzhen, formed a strategic alliance with Motorola Inc. on GSM and
next-generation mobile systems. Datang and Motorola have cooperated on
research and other areas for several years. Late last month, JinPeng and
Motorola set up a joint venture called JinPeng Mobile Telecom System Co.
Ltd. JinPeng is contributing its mobile switch technology and
intellectual-property rights, while Motorola has invested $29 million. The
partners will develop and produce GSM and next-generation equipment.
Another Motorola partner, Eastcom Co. Ltd. (Hangzhou), has also invested
in a U.S. joint venture based in Irvine, Calif., to develop GSM handsets based
on a Lucent Technologies chip set. Fan Liming, chief engineer for Eastcom's
GSM project, said the company would produce about 500,000 handsets this
year and 700,000 in 2000.
Shenzhen, the boom town across the border from Hong Kong, is quickly
becoming the hub of GSM development in China. Shenzhen HB Electronics
Ltd., one of the largest cordless-phone makers in Asia, has invested heavily
in GSM technology and produces thousands of handsets for the European
market each year.
Another local company, China Kejian Co. Ltd., launched its GSM handset in
December. It cooperated with IBM subsidiary Commquest to develop its
handset, which it expects to produce at the rate of 50,000 a month.
These and other GSM equipment makers scattered throughout China are
boosting government hopes that domestic production will eventually break the
grip of overseas manufacturers.
Emerging third-generation (3G) wireless phones could threaten the spread of
GSM technology in China, but larger coverage areas and technical progress
are expected to extend GSM's life cycle here. Nevertheless, four
narrowband-CDMA (code division multiple access) trial systems are
operating in Beijing, Shanghai, Guangzhou and Xian. Many observers view
the trials as the beginning of a 3G market here.
"Today is a prosperous and flourishing age [for] GSM, but it's also the
beginning of [the transition] from 2G to 3G," said MII's Xie Linzhen.
Still, industry executives predict China's transition to 3G could be difficult. As
CDMA tests continue, companies fear that patent holder Qualcomm Inc.
(San Diego) will charge high royalties to license the technology. "All CDMA
business [is] delayed in China," said Fan of Eastcom.
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