China Deals Blow to Qualcomm, Others, Halting Plans to Adopt Phone Standard
February 24, 1999
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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