The US Commerce Secretary Is Already Unhappy With Chinese Delays In Issuing 3G Mobile Licenses And Developing Its Own Standard So The Current Talk Of Building Another Trial Network Is Not What He Wants To Hear

Philip Stone January 16, 2007

US Commerce Secretary Carlos M. Gutierrez took the occasion at the recent consumer electronics show to blast China for its delay in introducing 3G mobile licenses and developing its own technology rather than accepting global standards.

But the word circulating in China this week is that there will be further delays in granting the licenses – not because of technical issues but rather political considerations as to how many operators there should be and who they are. That is going to upset not just the Americans but global equipment vendors such as Nokia and Ericsson who all hope to get a piece of the 100 billion yuan ($12.8 billion, €10 billion) investment planned to get the system, possibly systems, up and running

The US is annoyed because it is trying to promote global standards for the world’s new technology, and China’s insistence on developing its own TD-SCDMA (Time Division Synchronous Code Division Multiple Access) 3G system rather than adopting the existing CDMA (Code Division Multiple Access) flies right in the face of that.

It had been thought that the new Chinese system was at a stage where the licenses could be issued very soon, but China has instead announced it is building yet another trial network, this time in Shenzhen which is the Silicon Valley of Chinese mobile equipment makers. The Chinese are building the system there in a bid to get more suppliers to adopt the TD-SCDMA system.

Meanwhile, politics has entered the arena as to who should have a piece of the huge 3G pie and while it is still thought that 3G licenses could still be issued this year it is now looking later rather than sooner and the full service rollout may not be until 2008. The political delay also buys time for operators to continue fixing bugs in the new standard. 

Gutierrez, who led a trade mission to China last November, believes the Chinese government should keep its fingers out of the standards discussion and leave those decisions to the marketplace. “When a government uses its heavy hand to decide what is best for its citizens, it warps the marketplace. We look with great concern when any country obstructs or hinders competition, ” he told the consumer electronics conference in Las Vegas last week.

Or, in other words, American suppliers are fine with the CDMA system but there’s a big learning curve ahead in order to compete on the TD-SCDMA platform.

The internal politics is over who should get the licenses. It had been thought it would go to two vendors -- China Mobile, the country’s largest telecommunications carrier with about 70% of China’s mobile business, and China Unicom, the state-owned telecom operator that is listed on the New York Stock Exchange. But there is a belief now that authorities think 3G would be the perfect opportunity for the country’s fixed network operators to really get into the ever growing mobile business – they really need such an opportunity since the fixed line business is declining as people prefer just to have mobile phones.

So now China Telecom, the country’s largest fixed-line supplier, and China Netcom, the second largest fixed-line operator, are lobbying hard for 3G licenses and are thought to be front-runners.

Giving an inkling to the government’s thinking was Minister of Information Industry Wang Xudong who noted recently, “As the substitution of fixed line service with mobile service grows, the fixed line operators need mobile licenses to enhance market competition.”  The ministry said that 33.9% of people in China now own a mobile phone, compared with 28.3% with fixed lines.

Complicating issues even more is whether the first licenses will be just for the homegrown TD-SCDMA system, or whether the government will allow the CDMA system to go ahead at the same time. The latter decision would benefit China Unicom that already operates a CDMA network so without too much complication it could upgrade that network to CDMA2000 – the international 3G standard – and that would make Commerce Secretary Gutierrez back in Washington a happy man.

But complicating the political arena even more could be the unsubstantiated talk there might be a merger in the works between China Unicom and China Netcom.

What is true of all these companies, however, is that their senior managements are very close to the leading policy makers in the Chinese government. The lobbying is fierce, the decision-making very touchy, and the government is obviously buying more time to come up with the winning formula that will please everyone.

The government had promised that 3G would be available for the 2008 Beijing Olympics that will be held August 8-24, 2008. China Mobile has built a large number of ‘trial’ TD-SCDMA base stations and China Unicom has also started trial CDMA 2000 services. If those two do get their licenses the thinking is that within six months they could have their 3G networks operating across the country.

If that is the case, then while the Chinese seem to be cutting it close they still have a little time more to work out the politics.