Wednesday, June 20, 2007

China's 3G plans

In February 2001, I made my first (and thus far only) visit to China, to research Qualcomm’s efforts in China. The result was an MBA teaching case “Qualcomm in China,” published in two parts by Ivey Business School (A and B) and in a slightly different form by the Asian Case Research Journal (DOI: 10.1142/S0218927502000257 and DOI: 10.1142/S0218927502000269). This case is the basis for the China market entry discussion in the 2005 book The Qualcomm Equation.

[China Mobile dealer]When I finished the visit (and the research), the one thing I was itching to follow up on was China’s plans for its own 3G standard, TD-SCDMA. It was obviously a big issue: direct efforts by the Chinese government to delay 3G deployment and protect access to its market to help Chinese firms develop a national (and nationalistic) technology, to help Chinese firms gain privileged market access and (as with DVDs) pay less in foreign patent royalties.

Also interesting was the role of Siemens. By then, it was already an also-ran in the global mobile phone industry and thus were transferring technology to the Chinese in hopes of gaining market access; since then, they sold their handset business to BenQ (a business that then went bankrupt) and transferred their infrastructure to a joint venture with Nokia.

I really wanted to follow up on this — it was a top goal of mine, since this was obviously the next big standards battle, both in terms of market size and also as a technology policy issue. But I lacked the funds, time and language skills to pursue it, so put it aside to do “someday.”

This week I’m attending DRUID, the main European academic conference on the economics of innovation. I was fortunate to meet Hui Yan (or as they would say in Singapore, YAN Hui), a doctoral student of my friend Prof. Bent Dalum at Aalborg University in Denmark. Hui spent 4 years working for mobile phone companies in China, including Motorola and Nokia.

Hui is doing her dissertation on TD-SCDMA development and policy, focusing on the complex interactions between the Chinese government, domestic operators, domestic manufacturers and foreign manufacturers. At the DRUID conference on Wednesday, she presented a paper summarizing her findings thus far. She describes the long complex path that the Chinese government has taken in nurturing and protecting TD-SCDMA.

Today, China has no 3G service, while more than 450 million subscribers are using 3G in 134 countries worldwide. GSM carrier China Mobile once hoped to roll out WCDMA service in 2004. As with CDMA carriers in Japan and Korea, China Unicom could presumably upgrade from cdmaOne to cdma2000 at any time it wants.

Hui reports that both major carriers would prefer to use the upgrades to their existing technology (presumably because they prefer proven solutions than relying on the unproven new technology.) However, she reports that China’s MII has again delayed 3G another year to 2008 (or later) so that TD-SCDMA will be viable before any 3G licenses are awarded. Writing as from a Chinese perspective, she laments that this “Chinese” technology only has 7% of its patents held by Chinese firms, versus 66% by the three big European manufacturers (Nokia, Ericsson, Siemens).

As with the rest of the world, 3G is being pushed by manufacturers looking to sell multibillion dollar infrastructure upgrades; in this case, this is the shared interest of foreign and domestic manufacturers, even if they prefer different technologies. Meanwhile, absent proven demand for 3G services, the Chinese carriers would prefer to just keep growing their market penetration.

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