3G in China

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shanghaiceltic

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Posted: July 19, 2007 - 12:51 PM
Post subject: 3G in China

Found this and thought it was interesting.

Telecoms in China
Olympic hurdle

Jun 14th 2007 | HONG KONG
From The Economist print edition
After years of delay, China has yet to award 3G mobile licences. Why?

JIANG XIAOYU, the executive vice-president of the Beijing Organising Committee, ticks off the long list of extraordinary accomplishments that have been necessary for China to fulfil its commitments to the International Olympic Committee (IOC) for the 2008 games. Huge industrial operations, including a steel mill, have been moved from Beijing to reduce air pollution; construction is forging ahead on a new railway line, airport terminal and too many world-class sports facilities to count. Everything seems to be either on or ahead of schedule—with one exception. China may, says Mr Jiang, have to go back to the IOC to discuss its pledge to have a “third generation” (3G) mobile-phone network available in time for the games.

The ancient Greeks managed perfectly well without mobile phones, and this singular failure will probably not matter much to sports fans. But for China, the games are just as much a display of vibrant modernity as a sporting event. Using the Olympics to show off Chinese technological prowess by enabling throngs of spectators to follow events on their phones promised some useful public relations.

In all likelihood some 3G technology will be available, but only to a limited number of users in a limited area, thanks to a pilot scheme that should be running later this year in several cities. It is being set up by China Mobile, the world's largest mobile operator by subscriber numbers, which is under heavy pressure from the government. Rather than showing off the new China, this modest effort to catch up with 3G networks already common in other parts of the world illustrates how intractable and damaging state control of the Chinese economy continues to be.

For years foreign equipment-makers such as Ericsson and Nokia, and domestic ones such as Huawei and ZTE, have been salivating at the prospect of 3G being introduced in China, a country with nearly 500m mobile subscribers. From the industry's perspective, says Duncan Clark of BDA China, a consulting firm, the best thing the government could do is issue licences allowing China's operators to build 3G networks using one of the two international 3G technology standards.

But Chinese bureaucrats have instead been pushing a proprietary Chinese standard, called TD-SCDMA, that could circumvent royalties to Western companies and enhance China's reputation for innovation. The development of this new technology has taken years and cost a fortune, but it is still not ready. The government does not want to issue the 3G licences until its home-grown technology is ready to compete with foreign standards. But the plan to establish TD-SCDMA as a global 3G standard and sell gear to other countries now seems doomed to fail.

A further cause of delay is disagreement over the structure of China's telecoms industry. China Mobile is doing brilliantly, collecting two-thirds of all new subscribers and more than four-fifths of the industry's profit growth, according to JPMorgan, an investment bank. The rest of the industry is sliding into a funk. China's two fixed-line operators, China Telecom and China Netcom, are suffering as consumers defect to mobile phones for local calls and to cheap internet-based services for long-distance calls. Meanwhile, a second mobile provider, China Unicom, has adopted two incompatible network technologies and looks increasingly feeble.

As a result there is much talk of an impending industry reorganisation, which would need to happen before 3G licences were issued. China Mobile, it is said, would be given the small fixed-line network run by the state-controlled railway firm and would be saddled with a 3G licence forcing it to use the domestic 3G standard. China Unicom's two networks would be separated, with one awarded to each of the fixed-line firms. Each would then be granted a 3G licence allowing it to use one of the international 3G standards.

In capitalist economies, schemes like this can be worked out by the market, through a series of deals. Not long ago, the Chinese government could have simply mandated change. But now the country appears to be stuck. Three powerful regulatory agencies must approve any reordering, and there is a strong suspicion that they disagree with each other. All four telecoms firms have gone public on the Hong Kong Exchange, creating another constituency: outside shareholders. According to exchange rules, they must also approve of any reorganisation. Sorting out all these interests will be a nightmare.

Foreign investors looking at China often swoon at the country's vast potential but are driven mad by its conflicting and heavy-handed policies. The state of the country's telecoms industry, however, suggests that the Chinese government faces precisely the same problem.

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