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China Aims to Set Phone Standard

September 4, 2003

TELECOMMUNICATIONS


China Aims to Set Phone Standard
Move Is Part of Attempt to Boost Use
Of Chinese Innovations World-Wide
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL

HONG KONG -- China surprised the wireless industry three years ago by
declaring it would create its own technical standard for third-generation
mobile phones. Then it said it was going to develop its own format for
digital television. And five weeks ago, it announced it was creating a
different audio and video standard for the next wave of DVD players and
video-game players.
China's drive to create new standards in high technology is part of its
broader desire to claim equal footing with the world's top economic
powers. While China now makes more electronic goods than any other
country, the underlying technology nearly always comes from somewhere
else.
Its manufacturers pay a price for that dependence. Chinese DVD-player
makers pay between $3.50 and $5 a machine to the Japanese and European
firms that own DVD patents. Manufacturers in such places as Japan and the
U.S. often pay lower fees because they own some of the patents they use.
A standard is simply an agreement on how to accomplish a technical task
using a variety of patented ideas. The current standard for turning audio
and video into digital signals, called MPEG-2, involves patents from 22
companies around the world, but none from China.
By creating home-grown technical standards, China is trying to increase
the use of Chinese innovations world-wide. And it is using its own large
domestic market to help speed up their adoption. By requiring these
standards to be used on technical products in China, international
companies that want access to that market are forced to make products that
use them.
Some companies even publicly support and help develop these new standards.
For example, Siemens AG is playing a leading role in helping to develop
China's 3G standard, called TD-SCDMA. International Business Machines
Corp., Microsoft Corp. and Philips Electronics NV all joined the Chinese
group that announced the new way to compress audio and video signals into
digital form.
China is following a path previously trod by others. Technical standards
vary around the world because different countries backed the competing
technical designs of local companies. As a result, European televisions
and cellphones work on different standards than U.S. ones do. "China is
just following what everyone else does," says Stephen Wong, chairman of
Skyworth Digital Holdings Ltd., one of China's largest TV makers.
Even so, China is reluctant to adopt a standard that would end up
preventing its consumers and manufacturers from adopting a better or
cheaper technology used elsewhere. In 3G, for example, China's
wireless-service providers would like to use a standard that already has
been adopted in Europe, called WCDMA.
"It would be more cost effective," says Jacky S.L. Yung, assistant chief
financial officer of China Mobile Ltd., the country's leading
wireless-service operator. China's homegrown TD-SCDMA, "might be a good
complement or supplement."
In fact, the country's telecommunications regulator is expected to decide
in favor of using two 3G technical standards, just as it has permitted two
systems for the current generation of mobile phones.
However, in other areas, China is looking to set the standard even beyond
its own borders by licensing its standard at a lower cost to competitors.
The Beijing-based Audio-Video Coding Standards, or AVS, group aims to
publish a standard by the end of the year that will compete with MPEG-4,
the next generation of the standard used in DVD players, video games and
the Internet. Engineers in China began working on it a year ago after the
licensors of MPEG-4 met resistance when they created a complex and
potentially costly royalty scheme.
The AVS group instead is proposing charging only a few cents per device,
paid by manufacturers, to use its standard. "The key thing is not the
licensing fee but the combination of high performance, low complexity and
low cost," says Gao Wen, who is leading the AVS group.
But the group isn't alone in offering an alternative to MPEG-4. Microsoft
has its own method for encoding and decoding audio and video signals,
called Windows Media, and also is touting a simple license. And the MPEG
licensors are working on a version of MPEG-4 that may forgo the per-use
fees.
The AVS group's work "is one more force in that direction, but the market
force is already enormous," says Rob Koenen, chairman of the MPEG-4
Industry Forum, a group that promotes MPEG standards.
Write to Evan Ramstad at [e-mail]1
URL for this article:
http://online.wsj.com/article/0,,SB106261084448432900,00.html