Shanghai, China It's been a roller-coaster ride for homegrown technology in China, but little will deter the Chinese from pushing ahead with their efforts to introduce standards.
Some in China see the flurry of activity around standards as the only way for the country to break a cycle of intellectual-property dependence on the West that crimps its already-pinched margins. Others suspect it's a waste of resources, given foreign formats' entrenched dominance.
Either way, China's push for standards shouldn't surprise anyone.There are 300 million to 400 million cell phone users, and the government believes that fixed-line and wireless users will top 1 billion by 2010.
No surprise, then, that the country's tech developers want some skin in the game. Homegrown technology, if successful, could be a windfall for Chinese companies in the coming decades as China's middle class grows and its consumers snap up hundreds of millions of gadgets. If China could incorporate more of its technology into those devices, the theory goes, it could fill its own coffers with royalties, rather than pay them to foreign entities.
In the near term, however, the chances for change are slim. As 2006 showed, many of the Chinese efforts are still in the early stages of development. In 2007, a good bellwether for domestic IP--and how consumers react to it--will be the rollout of the country's 3G standard, TD-SCDMA.
China has been working on the standard for years. Indeed, TD-SCDMA is the reason for the delay of 3G licenses in China.
Next year, probably in the first half, TD-SCDMA will see the light of day. It will flop or fly based not only on consumers' appetite for 3G services, but also on the government's decision on whether a larger or smaller telecom operator will be forced to use TD-SCDMA. Yes, forced. No operator is eager to use it, despite the reams of technical documents lauding its technical superiority.
And that's the rub. Technology really doesn't matter much in the standards game. Often, what matters more is momentum. China's many standards efforts are sucking wind to catch up with well-established global standards. So unless the government can find ways to mandate acceptance, few of the homegrown technologies are likely to build the momentum to see large-scale success.
A tougher test
Chip companies have invested in TD-SCDMA because it's mandated, not because they necessarily think it can kick butt against wideband CDMA or cdma2000 1x. Mandates don't count at retail shops, though. The technology must stand on its own--and come in a trendy little form factor that Chinese consumers will like. If it doesn't, they will certainly reject it.
Consumer rejection of TD-SDCMA, aside from kicking off the greatest face-saving effort in the history of Chinese propaganda, would cast serious doubt on the sustainability of other Chinese standards activities. China is undertaking such efforts in at least 12 application areas: cell phones, Internet Protocol TV, optical disks, operating systems, wireless LANs, wireless broadband, digital TV, mobile TV, digital rights management, memory cards, home networking and A/V compression.
Mandates are in place only for 3G and digital terrestrial TV, though one may be in the offing for mobile broadcast TV. The success of digital terrestrial TV is assured, since it is tightly coupled with frequency allocation controlled by the government. Chip makers should be exploring this opportunity. For mobile TV, the situation is still fuzzy, with a few standards vying for superiority and with uncertainty about whether Beijing will mandate a domestic technology. The view should begin to clear during the next 18 months.
The markets that will still struggle include optical disks (China's homegrown technology here is Enhanced Versatile Disc, or EVD), wireless LANs (addressed by the WLAN Authentication and Privacy Infrastructure, or WAPI) and OSes.
How the various standards advance in 2007 will depend on the approach of the leaders of each area, as well as the government's influence over the companies selling the applications or services. For instance, China Netcom looks poised to implement AVS in its IPTV system. Earlier, the telecom company had leaned toward H.264. Netcom is a government-controlled entity, and government pressure was likely a factor in its change of heart. But the AVS Working Group also gets points for process. From its inception, leaders of the AVS group have encouraged industry participation by both Chinese and foreign companies.
Contrast that to the Machiavellian workings of WAPI. The handful of companies exercising control over the technology wanted to make it mandatory in China--an idea that ticked off Intel, Broadcom, Atheros and just about everyone with a stake in wireless LANs. Then the group didn't want to reveal the inner workings of the technology, expecting others to work with the anointed few in the consortium to get access. The gamble failed when the government refused to mandate the standard for anything other than government contracts.
If TD-SCDMA had taken the same route, it too would have doomed itself to failure. The lesson of WAPI is that Chinese consortium leaders need to open the field to all stakeholders, foreign and domestic.
Of course, even an open approach will will face imposing hurdles. But the Chinese are taking the long view. China's industry has proved willing, following each failure, to try again, until one of its efforts sticks. Eventually, one will.