The China connection
Telecom's Space Race
By Dean Calbreath
STAFF WRITER
March 7, 1999
At Chinasat' s expansive headquarters near Beijing, a bank of huge metal
dishes are trained on a set of satellites 750 miles into space.
Using technology from Qualcomm in San Diego, China' s state-owned
satellite company is linked to Globalstar, the network of communications
satellites created by Qualcomm and Loral Space Systems.
It' s the ' 90s version of the space
race: Globalstar vying with other
satellite competitors -- Iridium by
Motorola and ICO Global
Communications by Hughes
Electronics -- to bring China into its
worldwide phone system.
Like the old space race, some Cold War fears remain.
Over the last six months, Bernard Schwartz, the New York magnate who
heads both Loral and Globalstar, has figured prominently in a congressional
investigation to determine if his engineers passed sensitive rocketry
information to the Chinese.
At the same time, the National Security Committee in the House has been
investigating whether satellite ground stations in China, such as those that
Qualcomm is building in Beijing, Guangzhou and Lanzhou, can be adapted to
handle secure military communications for the People' s Liberation Army.
"Generally speaking, we' re concerned whenever there' s (been) an export of
satellite equipment to China that contains encrypted technology," says Bill
Klein, a military affairs adviser to Rep. Tillie Fowler, R-Fla., who has been
spearheading the investigation.
A spokesman for Globalstar, John Cunningham, bristles when he hears such
talk. "This whole issue of technology transfer to China is becoming too
politicized," he says.
Nevertheless, the government is clamping down on the export of satellite
technology.
Late last month, the Defense and State departments and the U.S. Arms
Control and Disarmament Agency, citing security concerns, denied permission
for Hughes Electronics to launch a satellite in China. The only government
agency to favor the launch was the Commerce Department, which has long
been criticized for supporting such high-tech exports.
Globalstar seems to be an unlikely target for a clampdown for it essentially is
a satellite phone network, which allows people to make calls and send faxes
and e-mail from almost any spot on earth.
The system relies on technology developed for the U.S. military during the
Cold War and was launched in 1993. It is a joint venture between Qualcomm
and Loral: Qualcomm provides cellular phones and ground stations -- or
"gateways" -- for the system; Loral is in charge of the satellite launches.
Over the last six years, Globalstar has become a key component of
Qualcomm' s business, ordering $792 million in cellular phones and gateways.
The system is committed to spending $870 million more with Qualcomm as
sales get rolling.
With the help of a dozen partners -- AirTouch, Alcatel, Daimler-Benz and
France Telecom are among them -- Globalstar serves more than 100 nations,
creating a network that can reach the entire globe outside the polar regions.
Because of the potential size of its market, China has become the biggest
sales target in Globalstar' s space race.
Globalstar sees China as an untapped market, where fewer than 5 percent of
people have phones, where 5 million are on the waiting lists for phones.
"China is installing 15 million lines of switching capacity and 100,000
kilometers of fiber-optic cables each year, but the built-up demand cannot be
satisfied," Schwartz says.
Just weeks after it was founded, Globalstar was holding seminars in China,
outlining plans to bring phones to the masses. Schwartz told the Chinese that
Globalstar could be "an efficient, affordable and timely solution" for meeting
the demand for phones, since it does not require the time or expense of laying
ground lines used by traditional phone networks.
However, because U.S. export laws tightened after the Tiananmen Square
massacre in 1989, Globalstar and its U.S. competitors at that time could not
export satellites and ground stations to China without obtaining waivers from
the State Department.
Schwartz, a lifelong Democrat, succeeded in getting waivers from both the
Bush and Clinton administrations to export some goods to China.
In the spring of 1994, Schwartz successfully urged Ron Brown, the late
Commerce secretary, to lift restrictions on transfers of technology, permitting
Schwartz to launch satellites in Russia and China.
He accompanied Brown on a trade mission to China, where he met with
leaders in the Chinese aerospace and telecommunications ministry, as well as
the military, to lay the groundwork for the push into China.
Schwartz wasn' t alone in lobbying to relax export controls.
One of the most active companies pushing to end trade barriers was
Motorola, part-owner of Iridium and one of Globalstar' s biggest competitors.
Richard Barth, assistant director of international trade at Motorola, wrote to
the State Department that controls put U.S. companies "at a significant
competitive disadvantage" in China.
Barth, a former national security adviser to President Bush, and other
Motorola executives lobbied the Clinton administration to shift oversight over
high-tech exports from the Defense and State departments to the Commerce
Department, which generally takes a pro-trade stance.
Over the next few years, the administration relaxed its trade
restrictions, shifting control over many products toward Commerce, even
though all government departments seemingly were becoming more open to
trade.
In 1996, for instance, when Schwartz applied for a White House waiver to
launch a Globalstar satellite from China and set up Qualcomm' s gateways, he
received approval from State, Defense, Commerce and the administration' s
Office of Science and Technology Policy.
Schwartz' plans to launch Globalstar' s first set of satellites from a Chinese
Long March rocket in 1996 went up in flames, however, when one rocket,
carrying several Loral satellites, plummeted to earth and killed 200 villagers.
Such explosions were not rare. At that time, one out of every four Long
March rockets failed, but the crash compelled Schwartz to shift Globalstar' s
launches to Russia and the United States.
By moving Globalstar' s launches out of China, Schwartz unknowingly saved
the company from becoming the flash point in a major controversy. It was the
1996 crash that sparked much of the interest into the technology transfer to
China.
After the crash, Loral launched an investigation and reportedly shared its
findings with the Chinese. That action, the Defense Department says,
provided the Chinese with the information needed to improve their missiles.
Schwartz says Loral' s probe merely confirmed the findings of a Chinese
investigation that determined the crash was caused by a failed solder joint.
Nevertheless, when the Defense Department' s findings were made public last
spring, they spurred congressional investigations, which also are examining
whether Iridium' s three launches in China aided Chinese rocket telemetry.
Rep. Duncan Hunter, R-El Cajon, has led the charge against further satellite
launches, saying Loral had revealed "highly sensitive aspects of the rocket' s
guidance and control systems, an area of weakness in China' s missile
programs."
Fearing that information gained by the Chinese could be used to improve
weapons launches, Hunter submitted a bill to ban all U.S. satellite launches in
China. The bill overwhelmingly passed the House with bipartisan support,
although it was rejected by the Senate, which feared the measure would
impose too many limits on exports to China.
Meanwhile, Schwartz continued to create inroads for Globalstar in China.
In November 1997, Schwartz signed a deal bringing Chinasat into the system,
allowing it to own and operate the gateways once they became operational.
Last April, China Telecom, the national phone service, paid $37.5 million to
become a 1.6 percent owner of Globalstar and will handle all land-based
hookups for the network in China.
Globalstar estimates that in the next three years it will have 200,000
customers in China, representing about 8 percent of its worldwide clientele.
The company hopes to make $250 million a year in China.
Still, it' s doubtful that Chinese villagers will be buying Globalstar cellular
phones any time soon. The Qualcomm-built phones carry a price tag of
around $1,000 to $1,500, making them much too pricey for the average
Chinese farmer, who make as little as $125 per year.
One solution is to set up Globalstar phone booths, bringing the service to
people who cannot afford the full price of a phone. Even then, the calls will
cost about $1.50 per minute.
So, who will be Globalstar' s primary customers?
Ming Louie, chief of Globalstar' s operations in the Asia-Pacific region, says
users will include government ministries as well as China' s emerging upper
class.
Louie contends the system is intended for civilians, not the military, but
Globalstar will have no control over that. Such decisions will be in the hands
of its partner, China Telecom, whose other duties include security in
telecommunications, building the government' s networks and handling
emergency communications in wartime.
Congressional critics of ground-station exports focus on whether they contain
encrypted technology, which is designed to protect calls from eavesdropping.
Fowler notes that some recent exports of satellite ground stations with
encrypted technology have gone to China Electronic Systems Engineering, a
trading company operated by the People' s Liberation Army. She is worried
that other exports could also be used for military purposes.
"When you' re in a situation like what we had two years ago, when China was
test-firing rockets over Taiwan and there were two U.S. carrier groups
headed into the South China Sea, you don' t want the Chinese to easily keep
their messages coded," says Klein, Fowler' s military aide.
A spokesman for Globalstar, Kerriann Hartman, declines to say whether
Qualcomm' s gateways in China are encrypted.
In general, she says, the calls do not need encryption, since Qualcomm' s
standard Code Division Multiple Access technology, or CDMA, does an
adequate job in protecting conversations.
Even some critics of trade to China concede that there are legitimate reasons
for exporting encryption there.
"If a business in Beijing wants to transmit information to one of its offices on
the other side of the country, it makes sense that it might want its messages
encrypted," Klein says.
Klein is not alone, though, in fearing that the security features used in a satellite
system could end up in the hands of the army.
"Western companies say they' re helping the Chinese people through their
investment and technology, but most people don' t have the money to use the
technology," says Chinese dissident Harry Wu. "In China, high-technology is
controlled by the government. And that usually means it is being used by the
military."
Copyright 1999 Union-Tribune Publishing Co |
