DN, It hurts to post this.... Find article at www.wsj.com Search:CDMA Does this mean it will be in the WSJ tomorrow...??? Please tell me it isn't so. ND
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May 25, 2000
China's Unicom Use of CDMA Technology
Looks Unlikely as Public Offer Draws Near
By MATT FORNEY and PETER WONACOTT
Staff Reporters of THE WALL STREET JOURNAL
A Chinese telephone company slated for one of the country's largest stock listings appears unlikely to deploy a mobile-phone technology it agreed to license from a U.S. company.
The trouble with the new technology is just one of many problems that China United Telecommunications Corp., or Unicom as it is widely known, has faced in recent years. In six years of existence, Unicom has gone through four chairmen. The government forced it to break ties with more than 20 foreign investors. Even Premier Zhu Rongji, the company's top political backer, criticized it live on national television for failing to coordinate with its government overseers.
Access Represented
Unicom reached a "framework agreement" in February with San Diego, California-based Qualcomm Corp. Unicom was to license Qualcomm's technology, called CDMA, to build a nationwide mobile-phone network for 10 million subscribers by the end of this year. The deal would have given Qualcomm access to the world's third-biggest mobile-phone market.
Within a week of the agreement, however, the Chinese government ordered Unicom to delay its plans. Now, it appears the deal with Qualcomm is imperiled. In a registration statement filed with the Securities and Exchange Commission in Washington on May 12, Unicom mentions CDMA only in passing as something approved by the government that "we are currently exploring." The document never mentions Qualcomm.
Since February, evidence has mounted that Unicom wouldn't act on its agreement with Qualcomm. For one thing, Unicom already operates a mobile network that uses a different, incompatible technology called GSM. That GSM network has roughly five million subscribers and is still expanding its capacity by 200,000 subscribers a week -- a waste of money if Unicom plans to roll out CDMA, or code-division multiple access, instead.
In addition, the world will move to new, "third generation" standards in as little as two years, driving the proposed "second generation" CDMA network toward obsolescence. Critics in China increasingly argue against building an expensive new system for such a short period. Even Unicom executives privately doubt the wisdom of building a CDMA system now, people close to the company say.
Unicom and Qualcomm both declined to comment for this article.
On the Road
Unicom executives will have to elaborate on their Qualcomm agreement during their roadshow, which starts Monday. The company hopes to raise $4 billion in stock sales in New York and Hong Kong starting June 21 and 22 through its Hong Kong-based listing vehicle, China Unicom (Hong Kong) Group Ltd. Three years ago, its rival China Telecom raised $4.2 billion in its overseas stock listing. Now, Beijing needs a Unicom success to stoke interest for other state enterprises it plans to list on overseas markets.
What Unicom has going for it is scarcity as one of the only two major telephone companies in China, it faces limited competition. And with Chinese phone companies still off limits to foreign investors, China Unicom will become one of only two such concerns with shares offered overseas.
The government created Unicom in 1994 to spur competition, which until then was nonexistent. The new company immediately ran into conflict with the former monopoly that it aimed to displace, China Telecom. China Telecom charged exorbitant fees to route its competitor's calls through its nationwide network, and often flatly refused to accept calls from Unicom, according to industry executives. With Unicom's overseas listing pending, the government demanded that China Telecom cooperate more with its start-up rival. By many accounts, Unicom's access has improved. "I think the Chinese government in the last year or so has given Unicom greater support than in the past," says Arthur Kobler, president of AT&T China Inc.
Unicom's initial efforts to raise money from overseas investors ended dismally. Chinese law forbids foreign firms from operating phone companies. Unicom, however, entered into complex arrangements in which foreign companies formed joint ventures with Chinese partners that built networks and leased them to Unicom. After the foreigners invested more than a billion dollars, the government deemed the arrangements illegal and forced Unicom to repay the investors. Negotiations were often bitter, but were resolved in time for the public offering. "We didn't get what we thought we would have through long-term development, but we're satisfied," says Mark Hauf, CEO of Asian American Telecommunications Corp., which invested more than $100 million in such a venture. Compensating former partners will cost Unicom. It plans to take a $145 million one-time charge to earnings this year, and must issue stock warrants, or rights to buy its shares, to some of them.
With the stock offer, Unicom hopes to put its cash problems behind it. The listing aims to raise about one-third of what is needed for a $12 billion business expansion plan. Unicom competes most strongly in mobile phones services. Its 4.2 million subscribers at the end of 1999 comprise a huge base, and last year its market share doubled to 14%. Remaining subscribers belong to Unicom's competitor, China Mobile, which spun off a year ago from China Telecom. Unicom also operates the biggest paging operation in China, with 43.5 million subscribers at the end of last year.
Write to Matt Forney at matt.forney@wsj.com and Peter Wonacott at peter.wonacott@awsj.com |
