WSJ. China Deals Blow to Qualcomm, Others, Halting Plans to Adopt Phone Standard
February 24, 1999
Tech Center
By WAYNE ARNOLD
Staff Reporter of THE WALL STREET JOURNAL
China has suspended plans to adopt a controversial U.S. cellular telephone
technology, dealing a potentially major blow to the technology's chief
proponent, Qualcomm Inc., and other U.S. telecommunications
companies.
Chinese officials and foreign cellular telephone executives in China say
Beijing has imposed a moratorium on the spread of CDMA cellular
technology for now, fearing the technology will soon be obsolete. CDMA,
or code division multiple access, was first commercialized by Qualcomm
and is the cellular-telephone standard widely used in the U.S.
"If we introduce another new network, we would need billions [of dollars]
in investment," said an official from China Telecom, the state-owned
telecommunications giant that dominates China's cellular telephone
industry.
Instead, China is pushing forward with the more popular European
standard called GSM, for global system for mobile communications. China
hopes that by keeping the nation on one standard, it can more quickly and
cheaply upgrade to GSM's successor, now being developed by cellular
manufacturers Telefon AB L.M. Ericsson of Sweden, Nokia Corp. of
Finland and Japanese cellular operator NTT Mobile Communications
Networks Inc. That technology, known as wideband-CDMA, or
WCDMA, is scheduled to make its debut in Japan in early 2001. China is
eager to use the much-broader capacity of WCDMA to open China's
increasingly crowded cellular networks, Chinese telecommunications
officials say.
Political Fray
China has become a key part of an increasingly political debate over
whether WCDMA should serve as a global cellular standard. Operators
and manufacturers are anxious to see the development of a technology that
would eliminate the wireless world's borders, which currently prevent a
phone from Japan, for example, being used in the U.S. The largest cellular
telephone operator in South Korea, one of the world's few sizable markets
for CDMA, is already considering adopting WCDMA so that Koreans
can use their phones in Japan during soccer's World Cup, to be held there
in 2002. "It's not only about China, it's a world-wide issue," said a
China-based executive at a U.S. telecommunications company who asked
not to be named.
Rumors have circulated since last October that Beijing had turned away
from CDMA because China Telecom, a former monopoly controlled by
China's Ministry of Information Industry, already has more than 17 million
GSM subscribers. The technology has also suffered from the waning
commercial influence of China's military, which had plans to build CDMA
networks, but last year was ordered to sever all business ties. "It's a Catch
22," said Michael Wallace, head of Qualcomm's consumer-products
business for Asia, describing how China's cellular policies reflect China
Telecom's commercial interests.
A moratorium is clearly bad news for San Diego-based Qualcomm,
whose founder Irwin Jacobs has personally lobbied Beijing to adopt the
technology. China is one of the world's fastest-growing markets for cellular
equipment; China's Ministry of Information Industry predicts the number of
mobile-phone users will grow to nearly 40 million this year from 25 million
in 1998. Other American companies, including Motorola Inc. and Lucent
Technologies Inc., also sell CDMA equipment in China.
Warning Issued
Qualcomm's complaint that government resistance to CDMA is a
protectionist measure has prompted Washington to warn European
countries against adopting WCDMA without accommodating Qualcomm's
CDMA. Adoption of CDMA also will be a key issue on the agenda when
Chinese Premier Zhu Rongji travels to the U.S. later this year. "We believe
that consumers should decide what technology she or he wants to use, not
the government," says a U.S. government official.
But industry executives say China's move makes sense from both a
technological and financial standpoint. "Why would you let anyone in your
country waste money on a technology from some company in California
that everyone is trying to get rid of?" asks Richard Siemens, chairman of
Hong Kong cellular company Distacom Communications Ltd.
GSM networks already crisscross China's major urban centers, enabling
GSM customers to use their phones nationwide, something even U.S.
operators, with their plethora of technological standards, are only just
beginning to offer. Such blanket coverage, industry experts say, presents a
huge marketing hurdle to newcomers with more sporadic coverage. GSM
also offers more extensive world-wide coverage than CDMA, meaning the
growing number of Chinese who travel abroad are able to carry their
mobile phones with them. Fledgling CDMA networks offering only local
service have a hard time competing.
Chinese telecommunications company Great Wall has already installed four
trial CDMA networks in Beijing, Guangzhou, Shanghai and Xian. The
company won't comment on what will become of those networks now.
The only other plans to adopt CDMA belonged to China Telecom rival
China Unicom, which was going to build CDMA networks near Shanghai,
Guangzhou and Tianjin. Unicom has suspended those plans, a company
spokesman said.
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