WASHINGTON China is dangling entry to its huge wireless market as a bargaining chip to gain access to core code-division multiple-access (CDMA) technologies that will form the basis for next-generation mobile telecommunications services there, a U.S. government report has found.
The report, compiled by the State and Commerce departments in September 2000, concluded that China's Ministry of Information Industry (MII), which calls the shots on wireless deployment in China, is reluctant to give the green light to second-generation CDMA technologies.
"MII wants to pay less royalty fees for the third-generation mobile technologies," the study said. "China uses the commercial deployment of 2G CDMA technology as a bargaining chip to gain, with less expenses, the core CDMA technologies which [form the basis for] 3G mobile telecommunications technology."
If Chinese manufacturers are able to produce CDMA equipment, Beijing believes foreign companies would have a tougher time dominating China's 3G market as they have the second-generation market. "The effective usage of the limited frequency resources of CDMA technology will eventually persuade China to use the technology for its mobile telecommunications network, which will surely lead to huge sales opportunities to U.S. firms," the report added.
Indeed, Chinese industry officials have stressed recently the need to use China's limited spectrum efficiently. A full 75 percent of China's available spectrum under 1 GHz is set aside for TV applications. Another 10-to-15 percent is controlled by the military, leaving the remainder for existing cell phone applications.
The Chinese government reached a framework agreement in February 2000 with CDMA pioneer Qualcomm Inc. (San Diego) on the handling of CDMA intellectual-property rights. Since then, several Chinese companies have negotiated CDMA manufacturing agreements with Qualcomm.
Qualcomm announced in December that it had formalized the framework agreement through a memorandum of understanding with MII. The memorandum confirmed MII's support for Qualcomm's agreement with China Unicom to cooperate on developing CDMA technologies in China.
"This [memorandum] also supports the deployment in China of a nationwide network based on CDMA technology with continued migration to advanced CDMA technology supporting higher data rates," Qualcomm said.
The stakes in China are high. The average annual growth rate for China's wireless market has exceeded 100 percent over the last decade. With penetration rates for mobile phones estimated to be only 4.7 percent of China's population of 1.2 billion, analysts said the number of new mobile subscribers could be huge. The U.S. & Foreign Commercial Service, a Commerce Department agency with personnel at U.S. embassies around the world, predicted in the CDMA report that China would have 78 million mobile-phone users by the end of 2000.
MII and senior Chinese government officials are expected to decide soon what technologies China will use for 3G mobile telecommunications. They will also decide which companies will receive licenses to build and operate China's 3G network. Three or more companies may be selected, according to industry analysts.
Contenders include China Unicom, China Telecom and China Mobile. China Unicom has said it will deploy cdma2000 in the first half of 2001. According to the U.S. report, other possibilities include China Mobile using wideband CDMA and China Telecom deploying a 3G system based on time-domain synchronous CDMA technology.
The final decisions could be made by top officials such as Vice Premier Wu Bangguo, who supervises MII from his position on China's State Council. The U.S. government report said a final decision might also require the approval of Premier Zhu Rongji and even President Jiang Zemin.