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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Eric L who wrote (959)	4/3/1999 7:40:00 AM
From: John Carragher	Read Replies (2) \| Respond to of 54805

mike/lindy/all Here is an article from a frequent poster on the Nokia thread. It gives a different view on cdma in China. fyi The view from Finland China Crisis By Tero Kuittinen, Guest Columnist Last Update: 8:30 AM MT Apr 1, 1999 Reality check As people evaluate the new mobile telecom deals made in China this week I suggest actually looking at what China is buying as opposed to what the officials are saying. What I'm seeing is the continued steady stream of 50-100 million dollar GSM network expansion deals. GSM subscriber base in China is hitting 40 million this year - no matter what happens to new CDMA networks. China is now stating that they will allow the existing CDMA networks to be expanded. They have not "embraced" or "endorsed" IS.95. When USA grants China the WTO membership we'll see the real attitude MII has towards CDMA unmasked. It won't be pretty. In the meanwhile, the GSM expansion deals already made are enough to boost the GSM subscriber base to 100-120 million during 2001. These deals are a fait accompli - the key infrastructure investments determining China's digital future were made between 1997-1999. Good luck persuading the Chinese to switch direction after the massive GSM investment binge - the losses would be staggering. The pride of MII is the Chinese GSM industry - domestic manufacturing base for both GSM infrastructure and handsets; created with great deal of effort between 1996-1999. MII will not knife this baby - not for Charlene, not for Bill. It's good to remember that CDMA was not introduced to China in 1997 by some bright-eyed, daring Chinese businessmen. It was part of a cynical power grab executed by People's Liberation Army. They could care less whether the CDMA operators make a profit - they just want a big chunk of Chinese economy under their control. The MII blocked CDMA's expansion as an attempt to limit the economic and political power of the PLA. The ministry is still palpably hostile towards the army-backed CDMA operators - earlier this week Chinese officials noted that Hyundai and Qualcomm mobile phones do not meet the minumum quality requirements for handsets. About Nordic folk wisdom USA is now able to channel many of this month's telecom deals to Motorola by threatening to damage China if they don't narrow the trade imbalance. What this amounts to is an attempt to repeal the market judgment on Motorola. This company had a huge market share in China in both network and handset businesses. They lost much of it to Ericsson, Nokia and Alcatel. This contributed to the ballooning trade imbalance between USA and China. That's how the free market works - there are winners and losers. Now USA has decided to turn back the clock and boost Motorola into the leading position they lost. As long as the WTO negotiations are going on, China is forced to play along. There's an old folk saying in Finland. "Kannettu vesi ei kaivossa pysy". Roughly translated it means: "Carried water does not stay in the well". And it's all true - you can't force a company to succeed by spoonfeeding it contracts it has not won by merit. We should know that much after what the dark, protectionist days of the Eighties telecom marketplace taught us. As soon as the trade negotiations are over, China will resume making their decisions independently. And from the 1997-1999 period we have a pretty good idea of what those decisions will be like. Barriers to entry CDMA operators in China will be facing competition that has domestic manufacturing base in China, three strong brand names that dominate the handset market completely, vastly superior national footprint, strong distribution networks built up during last five years, etc. GSM operators have already sewed up the 25 million most affluent, sophisticated consumers in the country. Chinese government has now an extra grudge against CDMA, adding to their worries about the army's attempt to dominate the economy via puppet companies - this format was forced on China in the most humiliating manner possible. Witness the "China bows to US pressure" and "USA wins the day" headlines in international news media. You don't need to have a degree in Asian studies to predict how this will impact the MII attitude towards GSM and CDMA. And of course, CDMA is not arriving to China now. It has been there since 1997 - with no impact on GSM expansion. The reasons are obvious: the lack of good coverage, weak handset selection and brands, the enormous volume disadvantage. None of these things will vanish with small CDMA expansion deals. What CDMA would need to overcome the GSM headstart is the kind of rapid, massive expansion that nobody has the stomach for. "Allowing" new CDMA networks does not amount to picking up the tab - and that's a crucial distinction. I'm not sure how many billions private investors will be willing to deliver to People's Liberation Army. This outfit is noted more for putting Tiananmen Square on the map than for their business acumen <TK>. I appreciate any feedback and try to address issues you raise on the Q&A page. Tero Kuittinen Tpkuitti@operoni.helsinki.fi Tero Kuittinen is a Finnish-based writer with an intense interst in telecom stocks. The opinions expressed are his own and should not be construed as investment advice. Readers should assume that both Mr. Kuittinen and associates of DeBry.com have positions in some or all of the securities mentioned, and may change their opinions and positions at any time. Top of page