InterDigital Inc (IDCC)

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Korea seeks 3G balance
2004-11-2

A report from ground zero in the competition between CDMA 2000 and WCDMA

Along with Japan, South Korea is on the cutting edge among nations when it comes to adoption of 3G cellular technology. However, the convoluted history of 3G in Korea demonstrates how standards selections can result in unintended consequences. Korea early adopted Qualcomm’s CDMA (code-division multiple-access) technology, but that choice is now hindering the country’s desire to also nurture the competing WCDMA (wideband-CDMA) technology, (which, despite the “CDMA” in its name, is actually related to GSM (Global System for Mobile communications)). Involving government agencies and corporate interests in Korea and elsewhere, not to mention consumers, the tale also has ramifications for the country’s role as a global handset manufacturer.

In December 1992, the MIC (Ministry of Information and Communication) selected Qualcomm’s CDMA as Korea’s telecom standard. Many critics insisted that GSM represented a better choice, but the MIC believed CDMA to be superior. The MIC cooperated with several large companies and R&D organizations, including Samsung Electronics and ETRI (Electronics and Telecommunications Research Institute), and, in January 1996, Korea became the first country to launch commercial CDMA services. In 2000, the first CDMA 2000 1xRTT service came online in Korea, and the faster CDMA 2000 1x EV-DO service followed in 2002.

However, because the countries using GSM technology vastly outnumber those using CDMA, many people consider the GSM-based WCDMA technology to be the more global 3G standard. So, Korea’s MIC selected SKT (SK Telecom) and KTF as WCDMA service providers. However, over time, SKT and KTF have put their efforts into the existing CDMA 2000 1x EV-DO services and have shown little interest in constructing WCDMA base stations and networks. Last year, several markets, including Seoul, launched WCDMA service, but the success of the service is still in question. MIC has been pressing SKT and KTF to keep to the original plan for WCDMA deployment.

WCDMA has for many reasons experienced a slow roll-out. First, its functions overlap with the current EV-DO network. For SKT and KTF, which currently provide EV-DO service, investing in WCDMA represents redundant spending and great risk. Meanwhile, the video-telephone and TV services that WCDMA is expected to provide have begun to appear via EV-DO. Finally, mobile handsets targeting the WCDMA market are too expensive because they integrate more multimedia chips, larger displays, and more features.


The current price of a Samsung WCDMA phone, for example, is $800 to $1000, two to three times the price of a 2G handset. The government, therefore, recently announced that it would allow carriers to subsidize as much as 25% of the cost of WCDMA PDA phones and 40% of WCDMA handsets, on a conditional basis. Still, it’s unclear how many consumers would jump to WCDMA even if handset prices were to quickly drop.

The situation also impacts handset manufacturing. LG recently exported 3 million WCDMA dual-band phones to Hutchison, an aggressive supporter of WCDMA. However, the other manufacturers, Samsung and Pantech, are taking a passive stance. The prices of WCDMA phones seem unlikely to drop quickly.

In addition, WCDMA is reportedly experiencing some temporary technology problems: unusually long delays in handoffs between WCDMA and other networks. Experts expect manufacturers to eradicate the problem by year’s end. Another challenge is limited battery life; a WCDMA phone can use video communication for only about one hour.

Despite these delays, groups supporting WCDMA, including the MIC, believe that Korea should for several reasons develop WCDMA. First, the MIC believes investment in WCDMA will impact manufacturing. “Many communication equipment makers are in Korea, and MIC expects the investment in WCDMA will help them to increase their competitive power,” says Lee Won Hee, an analyst with market-research firm Mindbranch. On the other hand, several local manufacturers are demanding that MIC choose CDMA 2000 as the one 3G standard, believing that, because they lack technological experience with WCDMA, market leadership will move to foreign companies.

WCDMA supporters also argue that Korea should not isolate itself from the rest of the world by its choice of cellular technology. MIC wants mobile carriers to keep their promise and deploy WCDMA as scheduled—or give up their rights.

As you might expect, money also plays a role. Qualcomm levies a 5.25% royalty on the net selling price of local products. For exports, the rate is 5.75%. What’s more troubling for manufacturers is that the royalty is increasing rapidly as mobile-handset prices rise due to the incorporation of advanced features, such as cameras and MP3 players.

In addition to Qualcomm, other companies, including Motorola and Lucent, request royalty payments based on their CDMA patents. They even call for Korean handset providers to compensate them for past years’ usage. Moreover, Qualcomm’s chip sets are pricey—$10 to $15 more than GSM chip sets. Meanwhile, Qualcomm makes a distinction between Korea and China with regard to royalties. China’s royalty at 2.65% is half as much as Korea’s. Privately, handset manufacturers also complain about Qualcomm’s order fulfillment.

Taking all these concerns together, some view a move to WCDMA as an escape from Qualcomm’s monopoly-like practices. “We are always concerned about unexpected CDMA-royalty claims,” says an official from one handset maker. To avoid such distressing royalty pressure, the official says his company is mulling over whether to scrap CDMA and focus on GSM.

Many analysts believe that WCDMA services will launch in Korea in 2005. However, the future of this market—both in Korea and worldwide—remains unclear.

http://www.tdscdma-forum.org/EN/news/see.asp?id=799

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