More TV/Com
Answering China's call | San Diego's telecom companies see nation as key to their expansion Dean Calbreath
08/09/98
The San Diego Union-Tribune
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Page I-1
(Copyright 1998)
HONG KONG -- At the entrance to the Truly Electronics factory in an industrial
neighborhood of Kowloon, the air is thick with the sweet perfume of sandalwood.
A beatific golden Buddha, the smiling centerpiece of a shrine in the lobby, is surrounded
by burning sticks of incense and offerings of fruit. Walk a few feet down the corridor,
however, and another image dominates: a poster of Mao Tse-tung. It has been hanging
on the wall for more than a decade, ever since Truly opened a factory on the mainland.
Chairman Mao. Lord Buddha. Not the images normally associated with a telecom firm,
but the icons underscore the growing importance that China plays in the
telecommunications industry.
Despite the ever-deepening economic crisis in Asia, China has become one of the
world's biggest markets for high-tech telephone technology -- particularly the type of
wireless equipment produced in San Diego County. China already is the world's
fourth-largest user of mobile phones, after the United States, Japan and Britain.
Sometime in the next two years, it's likely to rise to No. 3, thanks to intense government
spending. It's estimated that China, as part of a $1 trillion public-works program, might
spend $140 billion over the next 10 years to boost its telecommunications network.
The reason for the emphasis on wireless phones is simple: Many of China's 1.2 billion
citizens live in remote villages, with few connections to traditional phone lines.
As the government pushes to modernize the country, it is trying to bring telephone
services to the entire population, but it can't afford the time and expense of laying ground
lines. Wireless communication is faster -- and cheaper -- to set up.
During the last quarter of 1997 and the first quarter of 1998, China enrolled one million
subscribers for wireless services each month, building a subscriber base that now totals
about 15 million. If current projections hold, there could be more than 100 million
subscribers by 2003. Key area for expansion
It's little wonder that San Diego County's major telecommunications firms -- Qualcomm,
CommQuest, ComStream and Nuera Communications are on the list -- view China as a
key area for expansion.
"The growth of the telecommunications market in China is awesome," says Richard
Wong, chairman of Truly Telecommunications, which uses technology provided by
Encinitas-based CommQuest to produce wireless sets. Just north from Hong Kong, in
the high-tech manufacturing center of Shenzhen, Richard Tang also boasts of dramatic
growth in telecom sales. Tang directs the Asian operations of Nuera, which expects to
generate between $3 million to $5 million in contracts in China this year.
"The first year, our business grew 40 percent. Last year, it grew 150 percent, and this
year we hope it will grow 200 percent," Tang says. Nuera has two major projects in
China. First, it is working with China Motion telecom, one of China's biggest paging
operations, to help bring order to the paging industry.
China has about 3,000 mostly small paging companies, serving an estimated 60 million
users. Nuera's goal is to help create a centralized network that will provide dependable
service throughout the country. Secondly, Nuera is capitalizing on China's
government-driven attempts to build modernized data networks to link banks and
businesses nationwide. Nuera is wiring those networks for sound, which can be a pretty
heady task. "Just think about it," Tang says. "The Bank of China alone has 100,000
branches, and a lot of those haven't yet been connected by a phone network."
He says the Asian economic crisis, which is just beginning to be felt in China, is actually
helping his company. "Our customers want to keep their costs down, and one way of
doing that is through low-cost communications." Over a feast of jumbo prawns, goose
feet and bitter-melon soup, in a private room of one of Shenzhen's swankiest restaurants,
Tang and two Nuera distributors from Beijing discussd their latest prospects for business.
With a population of 11.4 million, Beijing is one of the company's hottest new markets.
Although the discussion is in Mandarin, a number of English words and phrases kept
popping up: "packet-switched network," "digital lines," "switching."
Finally, one of the distributors blurted out -- in English -- that his chief problem is that he's
getting orders faster than he can keep up. 'A nice problem to have'
"That's a nice problem to have," Tang says with a smile.
Not all companies can complain of their market share growing too fast. Qualcomm, the
biggest telecommunications firm in San Diego County, has been hampered in its attempts
to gain a foothold in China, largely because competing technologies already dominate the
market.
More than 99 percent of wireless telephones in China operate on the Global Systems for
Mobile Communications technology, or GSM. The Code Division Multiple Access
technology used by Qualcomm, or CDMA, represents a fraction of 1 percent.
One reason for the disparity is that GSM, which is popular throughout Europe, hit the
Chinese market several years earlier than CDMA. Such heavy-hitting GSM providers as
Nokia and Ericsson already have joint-venture plants in China -- a move that Qualcomm
is just now contemplating.
Anthony Thomley, Qualcomm's chief financial officer, notes that the Chinese
government pressures foreign companies to establish joint ventures with local firms.
"The reason for the pressure is not so much for job creation," Thomley says. "The
pressure is to transfer technology, so the Chinese can engineer and export and become
even more of a force globally." Despite its lack of a manufacturing base, Qualcomm has
been able to negotiate some impressive contracts in China. Last year, for example, the
company sold $300 million worth of handsets to Great Wall Development in Beijing.
Qualcomm has been stymied by red tape, however. A recent reorganization of the
Ministry of Post and Telecommunications delayed approval of contracts to develop
CDMA systems for regional phone systems in Xian, Beijing, Shanghai and Guangzhou.
Richard Grannis, Qualcomm's treasurer, says that's because European purveyors of
GSM systems have been lobbying against CDMA expansion in China. He also says turf
wars between the federal and regional phone systems have created additional obstacles.
"The federal authorities are interested in centralized control of the phone systems, and
they like GSM because they've already gotten a lot of equipment from Europe," he says.
"The regional authorities, on the other hand, want to make a name for themselves by
modernizing their systems as quickly as possible, even with CDMA systems."
As the dispute continues, the door remains open to GSM purveyors, such as
CommQuest, whose technology allows users to roam through the world's three GSM
frequency bands. CommQuest has been doing business in China for two years, thanks to
its partnership with Truly Telecommunications. Although Truly has a major telecom plant
in Hong Kong, it's planning to open a plant on the mainland in October to be closer to its
market. Strong marketing opportunity
Meanwhile, satellite broadcasting for television, radio and data is providing a strong
marketing opportunity for San Diego companies:
{} TV / Com International, a unit of Hyundai in San Diego, is providing satellite
equipment to five regional broadcasters, allowing them to transmit to the nation's
centralized cable networks. It also has set up a satellite uplink in Beijing, allowing
Chinese television to transmit abroad.
And it has launched a business TV network in Shanghai with a Chinese satellite firm.
{} General Instruments of San Diego is working with the Huaguang Satellite Cable TV
company to provide educational and entertainment programming to as many as 800,000
villages.
{} ComStream, a satellite-data transmission firm in Sorrento Valley, has made similar
inroads, landing a $6.2 million contract last year to supply equipment to a leading Chinese
export agency.
ComStream also sold $2 million worth of equipment to the Shanghai Stock Exchange and
Metals Exchange, allowing them to transmit live quotations to brokerages nationwide.
{} Pacific Research and Engineering of Carlsbad is selling broadcast studio equipment in
China.
There are some hurdles to doing business in China. Because of Beijing's tight censorship,
for instance, direct satellite-to-home transmissions are banned, although those controls
are to be lifted in 2000. To further develop the wireless market, Hong Kong's
government-run Productivity Council has established the quasi-independent
Telecommunications Technology Centre to create links between foreign telecom
concerns and local manufacturers.
The agency helped CommQuest develop its link with Truly Telecommunications and
guided Qualcomm officials on their scouting trips to develop local partnerships.
K.Y. Leung, senior project manager at the agency, concedes that there are barriers to
entering the Chinese market. "It's not a totally free marketplace," he says. "Local
suppliers still get preferential treatment." He adds, however, that the weakness of Asian
currencies has made it easier to produce large quantities of low-cost equipment in China.
He also emphasizes the attractions of doing business in the largest country in the world.
"Not everyone in China has money to spend," he says. "But those who have money are
eager to buy high-tech gimmicks." Speak up
China, one of the world's most underdeveloped countries, represents a burgeoning
market for telecommunications. To avoid long waiting lines for telephones, people are
turning to cellular and paging services. {} Population: 1.2 billion {} Main telephone lines:
109 million {} One phone for every 13 people.
{} One TV set for every 32 people.
{} Waiting list for telephones: 1.6 million.
{} Cellular subscribers: 6.85 million.
{} Paging subscribers: 40 million.
{} International outgoing traffic: 130 million calls.
1 PIC | 1 CHART; Caption: 1. Going online: China may spend $140 billion over the next
10 years to boost its telcommunications network. 2. Speak up; Credit: 1. GREG BAKER
/ The Associated Press 2. Source: Asia-Pacific Telecommunity |
