Features
Above the Fray
Follow the Money
Market Research
Big Ideas
Technoptions
Developer Insights
Q & A
Opinions

Archives
Calendar of Events
ASP Directory
Other Cahners Pubs

Submit a Release
Meet our Staff
Contact Us
Advertise
Magazine Subscription

Great Wall starts to crumble

China’s desire for 3G services is opening the door for U.S. and global infrastructure providers

by aleah mickelson
May/June 2001

Though the collision between a U.S. reconnaissance aircraft and a Chinese fighter jet on April 1 may seem like old news, the question of how this incident will affect U.S. and global companies dabbling in China’s wireless market remains on many minds.

American and global companies have an interest in preventing an escalation of the incident. And it is in China’s best interests, given its desire for trade, technological advancement and the 2008 Olympics. Yet the situation remains in flux.

Consider China Unicom’s CDMA buildout. In late March, China’s No. 2 wireless carrier, which holds about 20 percent market share, announced it would invest as much as $2.4 billion by 2002 to build a CDMA network, and began negotiating deals with Samsung, Nortel, Lucent, Motorola and others.

In early May, however, the Wall Street Journal reported that China Unicom held off on signing pending agreements with U.S. and foreign interests without explanation. A Motorola spokesman denies being aware of any delay, but a Lucent spokeswoman has said the company is continuing negotiations, suggesting the Lucent deal remains tentative.

"A strained U.S.-China relationship is not in the interests of most American businesses, especially telecom giants," says Yankee Group analyst Larry Wan. "Companies like Motorola have been in the China market for a decade and survived much more troubling incidents like the 1989 Tiananmen Massacre and the 1999 NATO bombing of the Chinese embassy in Belgrade. They are experienced in dealing with the Chinese government and local competitors."

Infrastructure vendors such as Nokia, Siemens, Ericsson and Motorola have targeted mainland China as one of their biggest markets over the next five years. Nokia already has invested $1 billion in the Chinese market, and Ericsson plans to increase its investment in China to $5.1 billion in the next five years. The most populous country in the world with more than 1.2 billion people, a teledensity of around 10 percent and a wireless penetration rate of only 6.8 percent, China is the world’s fastest growing and soon-to-be biggest mobile phone market. In addition, the country’s pending entry into the World Trade Organization promises a lucrative future for foreign telecom companies.

As for mobile data? With the population relatively poor by U.S. standards and under the tight reins of a communist government, which still seeks to control access to information, is there a future for the wireless ’Net in China? Intrinsic Technology, a Shanghai-based wireless application service provider, estimates that at year-end 2000, the number of wireless data users hovered around 300,000. But by year-end 2001, it expects that number to grow to 3.7 million users. And by year-end 2005, Intrinsic projects nearly 80 million wireless data users in China - a penetration rate of 31 percent - generating data-related revenue of more than $5.8 billion.

If data penetration relies on WAP offerings, those predictions may be revised downward, according to one observer. "WAP’s problems in China are the same as elsewhere," says Duncan Clark of BDA, an Internet consultancy in Beijing. "Hype is greater than reality."

Back in March 2000, phone companies began offering WAP in China, but within months the service faded. Slow access speeds, a dearth of content and lack of awareness of the service, along with the small number of WAP phones owned by Chinese subscribers, all but doomed the service, Intrinsic reports.

SMS, on the other hand, is doing quite well. "It’s taking off," Clark says. "Daily messages have increased five-fold in the last four months and BDA estimates they run at 250 million per day at the moment."

China Mobile’s new mobile data service, dubbed Monternet, may turn the tide for wireless data in China. Introduced last November and expected to launch by mid-2001, Monternet provides a revenue-sharing business model for mobile data services that closely resembles NTT DoCoMo’s i-mode business model. Under the plan, China Mobile forms partnerships with companies such as Linktone, China’s leading mobile service provider, allowing third-party providers to set their own pricing plans. China Mobile collects fees from message traffic as well as 9 percent of the ICP’s mobile-generated revenues.

Early Monternet trials fell short of expectations, however, says Jeffrey Spector, Linktone’s senior manager of international business development. "Monternet has had its problems," Spector says. "However, these are more likely than not its growing pains."

But even with the promise of Monternet, all eyes are focused on the launch of GPRS services, which will substantially increase data speeds. "With GPRS, [WAP] will be the protocol for mobile data that most people will use," Clark says.

While the deployment of GPRS is a given, the future of other technologies is less certain. Currently, both China Mobile and China Unicom are using GSM. Even though China Unicom has announced it will adopt CDMA technology, Yankee Group’s Wan expects GSM to remain the prevailing technology, citing GSM’s early domination and CDMA’s late entry. Still, Wan forecasts that by year-end 2005, 68 percent of subscribers will use GSM, 15 percent CDMA and the rest either 2.5G or 3G technologies.

Which 3G technology will succeed? There’s a fiery dispute: It could be wideband-CDMA, cdma2000 or the indigenous TD-SCDMA standard that China’s Ministry of Information is pushing. W-CDMA is the natural evolution for GSM, while cdma2000 is the natural upgrade for CDMA.

"I think they will go UMTS (W-CDMA)," says Subra Benkat, senior director, Asia-Pacific, for Oracle 9i application server. "One of the key things in the 3G market is the capability of roaming." Since other Asia-Pacific wireless carriers, most notably Japan’s NTT DoCoMo, plan to use W-CDMA, and since China Mobile’s GSM networks naturally upgrade to this standard, it makes sense for China to take the same route, although China Unicom’s decision to build out a CDMA network and the home-grown TD-SCDMA standard complicate matters. China’s Ministry of Information says it will wait until next year to decide on a 3G standard, the China Daily reported last month.

In December, the Yankee Group predicted the Asia-Pacific wireless market would show signs of a slowdown in 2001. And sure enough, it is - along with just about every other global market. Companies that have relied on strong sales in Asia and Europe to boost their bottom lines are now dealing with a slump in the United States and abroad. Still, analysts contend that China, which is proportionately less dependent than other countries on exports, remains a bright spot for growth.

"The macro-economic picture in China remains - so far - robust," BDA’s Clark says. "GDP growth estimates are in the 7 to 8 percent range. China is a significant market  -  top 1 or 2 for Ericsson and 2 or 3 for Nokia, globally." Which means a lot may be riding on a swift conclusion to the U.S.-China imbroglio.