AWSJ: Chinese Challenge Mobile Giants
06/04/2000
Dow Jones News Services
(Copyright ¸ 2000 Dow Jones & Company, Inc.)
Royalties are where Qualcomm factors in. It insists it can collect on just about everything using its
CDMA framework, including China's technology. "Qualcomm believes it holds essential intellectual
property rights for this proposed standard," says Qualcomm spokeswoman Christine Trimble.
included in the following article
By Matt Forney
Staff Reporter
BEIJING - Six years ago, a group of old Chinese friends, all engineers, sat in a cramped office in Beijing's
university district and decided they could take on Qualcomm Corp., the U.S. technology leader that had just
released a new wireless phone standard. The Chinese thought they could do it better.
"We figured it's good for the country to have its own technology" instead of relying on imports, explains Li
Shihe, the graying 59-year-old senior engineer who started the process. Mr. Li and two former students spent
three days scrawling calculations and sleeping on cots in a spare room. When they finally put down their pens,
they realized that what had begun as a lark might actually work.
After six years of intensive research and negotiations cemented in a Munich beer garden, those doodles are on
the verge of becoming a viable business - and making China a player in "third generation" mobile phones, which
can deliver graphics, video and all the dreamy applications of the Internet to a handset. Until now, China's
massive wireless network, the world's third biggest with 30 million users at the end of last year, has relied on
imported technology. A home-grown alternative, with a huge market awaiting it, could dramatically reverse
China's phone fortunes.
"This could be the golden goose for China," says John Ure, an expert on Chinese telecommunications at Hong
Kong University. "It will have the largest cellular market in the world, and economies of scale to launch an
export drive," he says.
China's sudden emergence as an innovator in wireless technology shows how, even as the U.S. leads the New
Economy, Asia is shaping developments in surprising ways. China's dithering on whether to adopt Qualcomm
Corp.'s phone standard has roiled this Nasdaq heavyweight's stock price over the past week. And the U.S.
and Europe are only now struggling to provide the wireless Web access that Japanese teenagers enjoy,
courtesy of NTT DoCoMo Inc., the wireless unit of Nippon Telegraph & Telephone Corp.
The development of China's standard, called TD-SCDMA, also leads the research institute that invented it, the
Chinese Academy of Telecommunications Technology, onto a collision course with Qualcomm. The San
Diego-based company says it holds patents in the new technology, something Mr. Li and other designers rebut.
In addition, the Chinese system, which enjoys privileged support from the government, will compete with
Qualcomm's product.
Spats with Qualcomm, though, will come only after China's invention proves itself. Wireless technologies have a
history of system failures and market rejections. Still, China's has already earned support from key international
organizations, and is well along in development.
Yet China barely made it this far. The man most responsible for winning that support for TD-SCDMA, Mr. Li,
nearly failed in his efforts.
Mr. Li was raised in remote Sichuan province and earned his Ph.D. in the early 1960s, just before the
decade-long Cultural Revolution closed China's schools. A brilliant researcher, he earned a spot in one of the
first groups of postwar Chinese to study abroad, in Montreal, in 1979. He returned home four years later with
a Canadian driver's license and expertise in wireless communications. Neither was much use in China back
then. Mobile communications were the exclusive purview of the government, long-distance phone calls still
required booking a line hours in advance, and huge swathes of the country were unreachable by anything but a
letter.
From his position as a senior engineer at the Chinese Academy of Telecommunications Technology, or CATT,
Mr. Li was well-positioned to take advantage of the telecommunications boom of the past decade. By 1998,
when Mr. Li and his friends thought they had perfected the new standard, the government backed him. He
launched a roadshow seeking global support for TD-SCDMA, but time was short.
He needed the International Telecommunication Union, which is affiliated with the United Nations, to approve
his standard. The ITU decides which technologies will run the world's phone networks and which will die a
Betamax death.
It was June. The end of the month would bring the ITU's deadline for proposing new standards. Mr. Li recalls
shopping his plans quickly through the world's leading companies - Motorola, Ericsson, Nokia: "None was
interested. They had already committed to other standards."
But he piqued one company's interest: Siemens AG. The German company had designed a similar system, and
after a series of meetings starting at Siemens' headquarters in Munich and ending the city's beer gardens, "we
signed an agreement to develop our technologies jointly," Mr. Li says. Just before deadline, Siemens and China
submitted their standards, and the ITU accepted both. Only two others cleared the hurdle: a
European-designed system called W-CDMA, and Qualcomm's cdma2000. Siemens promptly dispatched a
team of engineers to Beijing to "harmonize" the two technologies, and today it has 200 engineers designing
prototypes.
Most in the industry expect Chinese authorities to embrace TD-SCDMA. "We enjoy strong government
support," says Mr. Li. His institute is part of the same government agency that oversees wireless development,
the Ministry of Information Industry. "It can determine what technology a phone company will use," he says,
adding that he submits monthly progress reports directly to the powerful minister, Wu Jichuan.
So far, TD-SCDMA looks like a handful of imported silicon chips soldered into a steel desk drawer. By
December, Mr. Li and a team of German engineers hope to slide that drawer into a base station in Beijing that
will relay signals from mobile-phone handsets, and field-test the new technology. If all goes well, the "third
generation" standard will hit the market by 2001, competing with the Qualcomm and European standards.
The world today still lives in second-generation mode, which means mobile phones carry mostly voices.
TD-SCDMA is third generation. It will enable users to download information and graphics far more quickly
than most phone lines can today. Proponents say its main advantage compared to other standards is it can
download more efficiently. When people talk, their voices go back and forth pretty much equally. On the
wireless Internet, by contrast, most people will probably download more information than they send, and
TD-SCDMA can allocate more radio frequency for that.
The drawback of TD-SCDMA is that it might not work if users travel at high speeds, such as in a car. Mr. Li,
says his engineers have solved that problem, although he acknowledges that it might not work at speeds over
120 kilometers per hour.
TD-SCDMA faces other challenges. Because its development lags behind the major competing standards,
China and other countries that use it will likely deploy other systems first. The country's second phone
company, China United Telecommunications Corp., announced Sunday that it will deploy a competing
third-generation system designed by Qualcomm called cdma2000, probably around 2003.
For TD-SCDMA to win support from phone companies, handset makers will have to produce phones
compatible with it. That means China must convince the same foreign companies that refused to back
TD-SCDMA two years ago that they should now make mobile equipment using it. The lure is market size.
Many forecasts say 200 million Chinese will use mobile phones within the next several years. Finland's cellular
firm Nokia is already working on a TD-SCDMA phone, say engineers involved with the project, and others
are willing: "We're happy to work with China on this standard for both infrastructure and handsets," says Tim
Chen, a senior Beijing-based Motorola executive.
Those foreign companies would need to pay royalties to three TD-SCDMA patent-holders, each of which is
connected to the three doodlers who began designing the standard six years ago. One is Mr. Li's CATT. The
others are the Beijing-based Xinwei Telecommunication Technology Ltd., and a Texas-based firm formed by
one of Mr. Li's former students, CWILL Telecommunications Inc., which incorporated in 1995 to produce
TD-SCDMA hardware.
Royalties are where Qualcomm factors in. It insists it can collect on just about everything using its
CDMA framework, including China's technology. "Qualcomm believes it holds essential intellectual
property rights for this proposed standard," says Qualcomm spokeswoman Christine Trimble.
Engineers in China disagree. One reason the Beijing government supported the new standard in the first place
was to avoid paying Qualcomm, says the Siemens executive overseeing his firm's work in developing
prototypes, Li Wanlin. "It said, `Ah-ha, this will resolve the patent issue,'" he explains.
(END) DOW JONES NEWS 06-04-00 |
