China May Be Receptive To U.S. Wireless Players
Date: 6/18/98
Author: Reinhardt Krause
Makers of cellular phone equipment are ready to slug it out in China.
A digital wireless standard developed in Europe - Groupe Special Mobile - dominates China's small but fast-growing cellular market.
The U.S. Commerce Department, though, is pressing China's government to build new wireless systems using a cellular technology developed in the U.S. known as Code Division Multiple Access. There are signs the U.S. is succeeding.
''We're fairly confident there will be a buildout of CDMA in China,'' said Larry Hartigan, Qualcomm Inc.'s North Asia regional vice president.
San Diego-based Qualcomm developed CDMA and has broadly licensed the technology in the last five years. CDMA lets cellular service operators increase network capacity by cramming more calls onto limited radio spectrum.
Qualcomm and licensees such as Motorola Inc. and Lucent Technologies Inc. would benefit if China widely adopts CDMA. But European firms such as L.M. Ericsson Telephone Co., Nokia Corp. and Alcatel Alsthom are counting on China to stay with GSM.
David Aaron, Commerce's undersecretary for international trade, visited China in May. That was a follow-up to earlier talks. He asked the government to speed up its deployment of CDMA systems.
''There's a lot of optimism out there in the cellular industry about the prospects, but I don't know that Aaron had a firm commitment from the Chinese,'' a Commerce spokesman said.
The stakes in China are big. In '97, China bought about $3.5 billion in wireless equipment, analysts say.
The number of cellular subscribers in China will climb to 105 million by '03, from 13 million in '97, says market researcher Strategis Group in Washington. China added about 6.35 million cellular subscribers last year, up 87% from '96.
In Asia, only Korea today is a big user of CDMA systems, though Japan opened its market to CDMA late last year.
Ericsson's new chief executive, Sven-Christer Nilsson, says GSM will remain the prevailing standard.
''GSM is totally dominating today in Asia and China as the mobile standard, and you already have many GSM equipment suppliers,'' Nilsson told IBD. ''It will be difficult for anybody to rival that.''
One reason is that GSM offers superior roaming services. Roaming lets users make cellular calls outside their service provider's coverage area by piggybacking onto the local cell network.
''Roaming is a big issue, especially in southern China and Hong Kong,'' said Michael Krier, an analyst at Strategis Group.
While older, analog cellular systems operate in China, digital GSM networks are expanding quickly. In late May, Ericsson won a $172 million contract to build a GSM network in Harbin, China.
Some analysts think CDMA suppliers will face hurdles playing catch-up. The first GSM systems were built in China in '94. GSM-based cellular service is available in more than 300 cities.
CDMA's Asian presence today consists of trials in four cities: Guangdong, Beijing, Shanghai and Zheijiang. Lucent, Motorola and Korea's Samsung Group are supplying CDMA networking gear for the trials.
''It's been stated by the MPT (Ministry of Post and Telecommunications) that GSM is the nationwide wireless standard they're going to deploy,'' said Brian Modoff, an analyst with BT Alex. Brown who visited China in early June. ''They may deploy CDMA, but not nearly on the same scale or scope as GSM.''
There are three wireless service providers in China, which is only slowly moving toward privatization.
China Telecom (Hong Kong) Ltd. is the MPT's cellular operating arm and has the greatest share of subscribers in the country. It raised $4 billion in an initial public offering in October.
The other two cellular service providers are China Unicom and Great Wall Development Co., which is half-owned by the MPT.
Qualcomm last year signed a four- year deal, valued at $300 million, to provide CDMA handsets to Great Wall.
''Great Wall has (CDMA) trials in four cities, and we expect those to go commercial sometime this year,'' said Qualcomm's Hartigan. ''Unicom has frequency available to deploy CDMA, and my understanding is they have plans to do it.''
Unicom is controlled by China's electronics, utility and railway ministries.
But China has been slow to build out CDMA networks, analysts say. The country doesn't belong to the World Trade Organization and doesn't allow direct foreign investment in its telecom companies. That's also an issue the Commerce Department is bringing up in its talks.
''The question is why they haven't gone commercial. It strikes me as political,'' said Ira Brodsky, president of Datacomm Research Co. in Chesterfield, Mo. ''The GSM industry has lobbied very hard in China to block CDMA -just like they ensured that there was no competition for GSM in Europe.''
In the U.S., the cellular industry once questioned how well CDMA would work on a large scale. Critics said CDMA was too complex compared with GSM. Both technologies convert voice into digital signals and transmit the signals using specialized code.
But U.S. wireless carriers such as Sprint Corp. have committed to building CDMA systems. Sprint signed up more than 1 million CDMA subscribers last year.
Analysts like Brodsky say there no longer are technical issues with CDMA. The number of CDMA subscribers will rise to 44 million worldwide in '00 from 8 million this year, says Datacomm Research.
Still, GSM had 55 million subscribers worldwide last year, analysts say.
But Brodsky says CDMA can give GSM a battle in Asia. He calls Korea, Japan and China the three most important markets.
''The GSM industry has taken the approach of, 'If we just keep repeating that GSM is the world standard, it will be,' '' Brodsky said. ''GSM has a head start, but it's not clear that they've won the market in Asia.''
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