BEIJING—No one questions the potential of 3G wireless development in China—its more an issue of timing, and of which standards will gain traction in the worlds biggest market.
So when Chinas Minister of Information Industry Wang Xudong recently said that China will allow mobile operators to make their own decisions on which 3G standards to deploy, and that his government is in no rush to award 3G mobile phone licenses, it offered a modicum of clarity to both domestic and foreign wireless vendors on the worlds most expansive enterprise wireless market.
China has already begun testing three different 3G standards: CDMA2000 (Code Division Multiple Access), WCDMA (wideband CDMA) and the homegrown TD-SCDMA (Time Division Synchronous CDMA). The Ministry of Information Industry, or MII, the Chinese governments secretive technology ministry, is thought to be weighing a variety of factors ahead of its plan to issue 3G licenses at some unspecified point in the future. Some of the key factors include the testing and trialing of base stations and network equipment, the availability of interoperable handsets and experiments with a range of service applications.
China may only award three 3G licenses, rather than the four that many people expected, according to Chinese press reports quoting Chen Jinqiao, director of the Institute of Telecommunications Policy, during the Seventh China 3GSM Conference.
Chen says he expects two licenses to go to mobile operators, and a third will go to either China Telecom or China Netcom; whichever fixed line operator is awarded the license will be required to build a 3G network based on the TD-SCDMA standard. Datang Mobile and Siemens are also working closely on developing wireless enterprise equipment for TD-SCDMA networks.
After discussions with several top Chinese executives here, the consensus is that MII will likely issue 3G licenses in early 2005. But there are still questions about the applications beyond voice, which will drive revenues in the 3G service market in China. Service providers expect SMS (Short Message Service), WAP (Wireless Application Protocol) browsing and photo e-mail to generate interest among 3G subscribers in China.
SMS, which currently comprises 10 percent of all mobile subscriber revenues, is expected to see explosive growth. More than 200 billion SMS messages were sent in 2003, costing approximately 10 cents per message and generating close to 20 billion yuan, or $2.4 billion, in revenues last year.
“The government, initially, tried to promote technology, but in the last year it has shifted to supporting the total value chain for 3G in China,” said Joan Wang, director of 3G Strategy and Planning at UTStarcom (China) Ltd., at her companys Beijing offices and 3G development lab. She adds, “The government has gotten very practical and realistic.” UTStarcom is a leading player in the IP access, next-generation switching and networking solutions market. In late March the company struck a royalty licensing deal with Qualcomm, giving it a patent license to develop, manufacture and sell subscriber and infrastructure equipment for use in CDMA200, WCDMA and TD-SCDMA systems.
The Chinese government has already committed to investing 200 billion yuan ($24 billion) to build Chinas 3G network, and another 200 billion yuan to get Chinas 3G network, handsets and services up and running.
“The government is still not satisfied with the operation of 3G handsets—there are still bugs in both handset function and interoperability, and then there are questions about price and battery life,” Wang added.
Even after MII ultimately extends licenses it could be at least another eight or nine months before the services are up and running, making it unlikely 3G will begin widespread deployment until 2006.
Another drag on 3G development in China is the fact that China Mobile, China Unicom and other vendors are generating substantial revenue from their 2.5G voice traffic. “It isnt in their interest for 3G services to be deployed right away,” said Xie Linzhen, vice president of China Mobile Communication Association (CMCA) and a standing member of the Science & Technology Committee of MII.
As a result of the disastrous 3G auction process in Europe, which has ultimately stymied the growth of the market, Linzhen said the “Chinese government is going to be more careful in building the 3G system in China. There are many problems that remain to be solved.”
But Xie said that while there are technical issues that still need to be ironed out, the potential for advanced wireless services in China is immense. Currently, there are 286 million Chinese wireless subscribers—only about 21 percent of the potential market, according to CMCA. Linzhen said there is widespread use in the major western cities, especially Beijing and Shanghai, but there is still tremendous potential for growth in Chinas next top ten cities. The CMCA says about 7 million wireless subscribers are being added every month.
The bulk of Chinese subscribers—close to 265 million—are on the GSM (Global System for Mobile Communications) standard, but 21 million use CDMA, and that is expected to grow dramatically in the future.
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