China,Again>
Firms, Governments, Military Fight Over China's Cellular Market
Beijing, Feb. 26 (Bloomberg) -- Governments, foreign and local companies, and even the Chinese
armed forces have become embroiled in a battle over which cellular telephone standard China
should adopt.
At stake is access to the world's fastest-growing major market for mobile phones. China's cellular
subscriber base is expected to grow 80 percent this year to 45 million, surpassing Japan, and
making it the world's second-biggest market after the U.S.
China's Ministry of Information Industry (MII), which runs the country's near-monopoly carrier, China
Telecom, denies newspaper reports that it already ruled out adopting the U.S. technical standard
known as CDMA, or code division multiple access. ''We have not made a decision,'' said Cheng
Guanghui, a spokesman for the MII. ''The reports are not true.''
The adoption of CDMA would cut demand for products supplied by European producers of the
rival standard known as GSM, or global system for mobile communications. Producers of GSM-
compatible equipment include Finland's Nokia AB and Sweden's Ericsson AB. Both companies
count China, including Hong Kong, as their biggest market worldwide.
So far, though, the MII has stonewalled, allowing four foreign companies to spend millions of
dollars developing pilot CDMA networks in a few cities but refusing to permit them to become fully
commercialized and expand into other regions.
That restriction irks Washington, where senior trade officials have lobbied on behalf of U.S.
companies supplying CDMA technology. These include San Diego-based Qualcomm Inc., which
owns many of the basic CDMA technology patents, and Motorola Inc. and Lucent Technologies
Inc., which have built trial networks in Beijing and Guangdong province, respectively.
The tiff over standards is likely to be high on the agenda when China's Premier Zhu Rongji travels
in April to Washington for a summit with U.S. President Bill Clinton.
The obstacles to CDMA join Washington's lengthening list of complaints against Beijing, including
human rights violations, allegations that China stole sensitive U.S. technology, and China's
widening trade imbalance with the U.S. China's trade surplus with the U.S. rose 14 percent in
1998 to a record $56.9 billion, according to U.S. Department of Commerce data.
Crossed Wireless
Zhu may argue that the U.S. is partly to blame for the trade gap, pointing to the telecom market as
an example.
Earlier this week, the Clinton Administration blocked the export to China of two satellites and other
cellular telecommunications equipment by Hughes Electronics, out of concern the advanced
system would be operated by military- controlled companies. The shipment would have earned
Hughes, a unit of General Motors Corp., as much as $500 million.
China's People's Liberation Army is likely to be the main domestic beneficiary of any success
Washington has in promoting CDMA technology to Beijing.
In China, the radio frequencies to be used for CDMA are all controlled by the army. Military-linked
companies, along with the MII, own the four companies which operate CDMA networks in four
Chinese cities.
Indeed, CDMA equipment suppliers, such as Korea's Samsung Electronics Co., see the military's
involvement as the best chance CDMA has to win approval. ''The army organization is very
important in CDMA policy in China,'' said Sung Han Bae, the Samsung Group's chief
representative in China for telecommunications business.
He said the army ''insists on CDMA'' and is sticking to its plans to develop the network.
For their part, army-linked companies are pushing ahead with trial CDMA networks in Beijing,
Shanghai, Xi'an and Guangdong province, some of which have been operable for two years.
The head of operations for Beijing Telecom Great Wall Mobile Communications Co. Ltd., the
company installing CDMA in the capital, said its pilot network is ''going very well'' and the
company is planning to expand the network later this year. She declined to give her name.
Companies expect the northern port city of Tianjin to be named among a second batch of
locations where CDMA will be introduced. ''Tianjin is still preparing this technology, although we
don't know when it will be approved,'' said Niu Dianchen, a manager of Tianjin Great Wall Mobile
Communications Co. Ltd.
Third Generation
If Beijing decides to ditch CDMA and stick with its existing GSM-based technology, Samsung,
Lucent, Motorola and Canada's Northern Telecom Inc. would lose their investments. Potential
suppliers of equipment such as Korea's LG Electronics Co. and Qualcomm would also lose
markets for their products.
The Chinese government would also have to decide how to compensate more than 30,000
people already using CDMA phones in the areas where the networks are operating, Samsung's
Bae said.
Some telecommunications analysts, such as Shanghai-based Duncan Clark of BD Associates,
say Beijing's decision may hinge on which technology it believes will become the international
standard for the next, so-called ''third generation'' of mobile phones.
If China bets the future on the wide-band CDMA mode, known as WCDMA, which is being
developed in part by Nokia and Ericsson, the U.S. and Korean suppliers of CDMA will lose out,
Clark said.
The Ministry of Information Industry has an incentive of its own to push the WCDMA protocol: if
CDMA succeeds instead, it will dilute the MII's dominance of China's telecommunications, which it
controls through China Telecom.
WCDMA, on the other hand, uses frequencies not controlled by the Chinese military, allowing the
MII to cut the army out of the equation, Clark said.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min.
|
