China raises own standard in 3G telecom: But the real motives behind its investment may be more complex, finds Joe Leahy:
Financial Times (London)
January 8, 2003
By JOE LEAHY
Huawei Technologies, China's leading domestic telecom equipment maker, is not shy about its achievements.
Inside the company's vast headquarters in southern China, visitors are shown an exhibition hall showcasing the company's network switches and other gear while officials rattle off vital statistics: USDollars 3.1bn in sales in 2001, 22,000 staff - half of them engaged in research and development - and products sold in 38 countries.
But when the questions touch on the critical issue of third-generation telecommunications services in China and what technological standard the country should adopt, the discussion hits a wall.
"What the customers need, Huawei will do," Fei Min, Huawei executive vice-president, answers cryptically, refusing to give further details. Huawei's reticence on 3G is reflective of the mood throughout the world's largest mobile market.
The company is one of a number of domestic equipment makers that have joined - some say have been press-ganged into joining - a coalition to develop a homegrown 3G technology standard, TD-SCDMA.
The technology, which the government hopes will compete with the two global 3G standards, European-based WCDMA and US-owned CDMA2000, is being jointly developed by Germany's Siemens and a state-backed Chinese company, Datang.
Late last year, the government gave its blessing to the project, promising funds for development and earmarking radio spectrum.
The government is also believed to have played a role in assembling the coalition of technology champions to support the standard. Apart from Huawei, these include Legend, ZTE and other companies manufacturing everything from chips to network equipment and handsets.
Zhou Huan, president of Datang, argues that his company's technology, which he says will be ready for market by late 2004, is more flexible, cheaper and can handle bigger volumes of data than WCDMA and CDMA2000.
For the government, TD-SCDMA offers the tantalising prospect of national ownership of a cellular standard.
"China is taking the view that 'They have a shot, so let's give them a chance. If they can actually come up with product and the technology is able to offer benefits relative to the other two standards, then we should push it,' " says Edison Lee, telecoms analyst at JP Morgan in Hong Kong.
But behind the flag-waving, analysts say the technology has few real enthusiasts aside from Datang.
Siemens' support for the project is believed to be at least partly aimed at winning political capital in China. The company is involved in numerous larger projects in the country, such as Shanghai's magnetic levitation train, and will be keen to secure more.
Others, like Huawei, are believed to be interested in TD-SCDMA only as a "hedge". Huawei has already invested heavily in other 3G standards, setting up, for instance, 21 WCDMA trial networks.
The problem for TD-SCDMA is that the other standards have stolen a march on it in rollout and research.
China's two mobile operators, China Mobile and China Unicom, operate GSM (the forerunner of WCDMA) and CDMA systems and are unlikely to want to switch midstream.
While they have expressed support for TD-SCDMA, tellingly neither is involved in the coalition.
The country's other major telecoms carriers - fixed-line operators China Telecom and China Netcom - might be induced or coerced to adopt the new standard when China eventually awards 3G licences in the next two years. But they would have to be offered strong incentives.
To catch up, TD-SCDMA will need large amounts of investment. Datang, on its website, says it had sales of Rmb4bn (Dollars 481m) in 1999, but analysts believe it is loss-making and is supported by the state. Siemens pledged an additional Dollars 50m for the project last year, but more will be needed to catch up with the spending on other standards.
"Making a standard is not an easy thing - wishing it to happen, and even having capital and some regulatory wind behind your sails is not enough," says Duncan Clark, managing director of BDA China, a telecoms consultancy.
While Datang is keen to wave the flag to generate patriotic support for TD-SCDMA, most analysts believe that, privately, China will be more pragmatic.
In telecoms, China is increasingly realising it does not need to own the technology - the sheer scale of its market means it can call the shots anyway.
The country may simply be using TD-SCDMA as a bargaining chip, a stick with which to beat more concessions out of foreign technology providers.
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