China Unicom Shifts Focus from CDMA to GSM
May 24, 2000
By JONAH GREENBERG
insidechina.com
China Unicom, China's second largest telecommunications operator, will downsize and delay plans to use the American CDMA technology for cellular networks in an effort to keep mobile subscribers happy, an official from the company said last week.
China Unicom's plans to build up a CDMA network capable of carrying 10 million subscribers by 2001 have been hindered by Beijing, which wants to ensure that domestic telecom companies secure licensing revenues and that profits aren't diverted into foreign pockets.
Party officials and planners in the highest levels of the Chinese government are pressuring companies like China Unicom to develop new technologies so both the companies and the government itself gets royalty and licensing revenues that continue far into the future.
If CDMA in its present form were widely adopted, those revenues would go largely to an American company, Qualcomm (ticker: QCOM), which developed the CDMA technology and has already signed licensing agreements with China Unicom. Beijing also wants to ensure that domestic manufacturers get a major share of the orders for equipment used in China's exploding telecommunications industry.
China Unicom will shift its focus from CDMA to expand its GSM (global system for mobile communications) networks, said Hu Qingdong, a China Unicom spokesman who last week gave a keynote address at the China Telecom 2000 conference in Washington D.C. China Unicom already carries over five million subscribers in 200 cities in China using the GSM platform.
While the vast majority of commercial cellular networks in China use GSM technology, China Unicom, one of two officially recognized mobile service providers in China, had planned to build out new national networks using the CDMA technology. Last February the company signed a contract with Qualcomm that set the terms by which equipment manufacturers in China could be licensed to produce CDMA equipment.
A NEW SITUATION
Shares in Qualcomm, which rose 6 percent on February 1 on news of its original deal to license its CDMA technology to China Unicom, fell 14.5 percent last week to 89. QCOM traded at 136 on Febuary 2.
When it was first announced, Qualcomm's contract appeared to pave the way for CDMA deployment in China. That would have benefited companies like Qualcomm, and other U.S. companies supporting that technology. Weeks later, however, the government stepped in and quickly put a stop to those plans amid speculation that Beijing sought to gain control of the rapidly growing wireless industry in China.
"The situation changed," Hu said in an interview last week. "We have changed things, and we will expand our GSM capacity."
Hu said the contract with Qualcomm will be honored, and purchases from foreign vendors may yet materialize. But he said that other factors are involved, such as the company's relationship with the government.
BUILDING NETWORKS
"The contracts will be decided only after we have planned our network," he said. China Unicom's ultimate plans will also be influenced by the ruling of the Central Planning Committee, a powerful group of party officials in Beijing who dictate large-scale industry investments in China, he said.
Telecommunications networks are expanding rapidly in China as consumer demand for mobile services is radically on the rise, and the country's two operators race to build out more networks and meet that demand.
At the end of 1999 there were 43 million mobile subscribers in China, 90 percent of whom were carried by China Mobile, which earlier this year became independent of the giant state-owned operator China Telecom.
China Unicom, which was introduced to the market in 1994 to compete with China Telecom, holds claim to the remaining 10 percent of the market. Last quarter, cellular handset manufacturers reported an 81 percent rise in cellular phone sales in China, according to the South China Morning Post. China will soon surpass Japan as the second largest market for cell phones and mobile services. The U.S. remains the largest market.
"WE WANT OUR OWN"
With 3G, or third generation, wireless technologies on the rise in laboratories and drawing boards around the world, the Chinese government is planning to take advantage of the introduction of yet-undeveloped and nascent technologies to get a piece of the telecom pie in China.
c, director of the Science and Technology Information Center at the China Academy of Telecommunications Research at the Ministry of Information Industry (MII), who also spoke at last week's conference, pointed out that the government has invested heavily in research and development programs aimed at making 3G network deployment in China a boon to the domestic industry.
"We will want to get our own IPR (intellectual property rights)," Lei said in an interview following his presentation. "Our government wants to form our own 3G industry."
In particular, Lei said, Beijing was determined to change the current situation of foreign profit resulting from domestic development.
Base stations, or cell signal transmitters, and other wireless network equipment are currently produced by foreign companies like Nortel, Motorola, Lucent, and Alcatel.
BROADBAND WIRELESS
"Our government pays much attention to 3G systems," said Lei, who said that Beijing supports research in tandem with domestic companies that are developing patents that can be used when 3G technologies are realized in the next two to three years.
Lei emphasized that Beijing will support the 3G industry in return for sharing a percentage of profits made as a result of that investment.
"The government gives money to jointly develop 3G systems, and then they will share the achievements and patents with the manufacturers," he said.
The mobile networks of the future that will support broadband wireless Internet data, and be used for Internet access for tens of millions of Chinese consumers, are expected to use WCDMA, or wide band CDMA. The narrow band CDMA networks that China Unicom had planned to deploy could easily be made obsolete by future development.
A BIG CONCERN
CDMA technology is widely regarded as a more efficient technology by engineers and industry experts, although Hu played down the qualitative difference between the two technologies.
"Some experts have these opinions, but others have different opinions," he said. "In different situations you can reach different conclusions."
Lei said China Unicom and China Mobile recognize that CDMA is better than GSM in terms of spectrum efficiency. As China experiences a rise in the use of mobile telephones -- and because wireless platforms may be used for much of the Internet traffic in coming generations in China -- the user capacity of networks now being built are a big concern.
The Chinese planning authorities are no doubt aware of the risk involved with using GSM networks and TDMA technology for all wireless infrastructure.
"China Unicom is above all a company, and these things are decided by our own situation and needs," Hu said. "Perhaps CDMA is a good technology, but GSM has been developed for too many years. If you don't have capacity of the system, customers will be lost. The market decides everything."
"The important thing for the company is how to make money," he said.
Beijing Telecom Great Wall is another mobile service provider that uses CDMA technology commercially in Beijing, and they enhanced their CDMA networks in February using equipment from Motorola and Compaq.
However, Great Wall is owned by a commercial arm of the People's Liberation Army (PLA), which is officially not allowed to compete with commercial enterprises. CDMA technolgy uses the 800 MHz band of radio waves, which was originally allocated to the PLA in China. Although the government helped to secure space in the 800 MHz band for China Unicom, other mobile operators like China Mobile would have a difficult time getting airspace on the 800 MHz band, according to Lei.
While China Unicom's plans to build CDMA networks are not necessarily scrapped entirely, they are most likely going to be significantly downsized, according to a representative of Nortel Networks, a leading supplier of mobile equipment. According to Charles Mah, senior manager of international marketing at Nortel Networks, China Unicom will build out one network in June, but on a "significantly smaller scale than China Unicom originally planned."
Mah, who also spoke at the conference last week, said Nortel was one of two foreign vendors licensed to supply CDMA equipment in China. |
