The big delays for state-owned mobile network provider China Mobile in launching a homegrown 3G network may be a blessing in disguise.
China's much publicised but long delayed 3G network TD-SCDMA continues to have analysts wondering if a homegrown solution will be worth the billions of dollars and years of development time that have already been invested. State-owned network provider China Mobile has been saddled with perfecting and implementing TD-SCDMA. Meanwhile, the company's competitors are readying foreign networks that, analysts believe, outperform China's version.
Capable of extremely fast data transmission, 3G networks promise broadband speed and crystal-clear voice and video communication. China has refused to issue licences for outside 3G networks – now widely available in Japan and Korea – while it develops its own technology.
Originally developed by the Chinese Academy of Telecommunications Technology, Datang and Siemens, responsibility for perfecting TD-SCDMA was handed over by the government to China Mobile. Word is that the company was less than delighted with the move, and testing of the technology continues. China Mobile's main competitor China Unicom, meanwhile, has been allowed to prepare European-standard W-CDMA 3G technology, and has announced that it could see operational profitability by 2013.
By delaying general release of these networks to the public, however, the government has given China Mobile time to bring TD-SCDMA up to international standards. "I think [the government] is trying to control the market. I think that's the reason it's been waiting," says David James, president of Business Strategies International. "It wants TD-SCDMA to develop more before it starts giving licences for other technologies. It would love to have its own homegrown technology be a decent player. The dilemma is that, as time passes, their homegrown technology is just not keeping pace with the rest."
But by playing the waiting game, China may have given itself the tools not only to institute a profitable 3G market in China, but also the technological prowess to be a major international mobile network force in the future.
Homegrown Innovation Push
China is pushing for homegrown innovation in everything from commercial aircraft to blu-ray discs. The development of a TD-SCDMA network falls in line with the general narrative of modern Chinese technological progress. There is also much money at stake. The two major network and telecoms equipment providers in China – Huawei and ZTE – must pay royalties for the foreign technology they currently produce and export.
By creating a homegrown network, China could help these companies stay competitive while exporting a uniquely Chinese product. "It was simply an attempt to make TDSCDMA an eventual global standard, and as the pioneers of the technology in terms of patents, equipment, etc, Chinese companies would be the primary beneficiaries," says Marc Einstein, a senior industry analyst at Frost & Sullivan.
So China Mobile is footing some of the bill for Huawei and ZTE, leaving the world's largest mobile phone network operator less than enthused about TD-SCDMA. "We've noticed an absence of positive supporting statements from the operators, especially China Mobile," says Dave Carini, co-founder and director of Maverick Research China.
Fortunately for China, the size of the domestic market has given China Mobile the capital to execute the research and testing needed to bring TD-SCDMA close to international standards. China Mobile's 2007 revenue was about Rmb 356 bn, and various estimates have put its 3G expenditure at around Rmb 27 bn.
Competitive Disadvantage?
Though only the future will tell us if TD-SCDMA can be made a success internationally, it may have already altered the mobile network provider market in China. Recent government-recommended mergers have left China with three main network providers: China Mobile, China Unicom and China Telecom. Unicom and Telecom are building networks with established technology while Mobile plays catch-up with TD-SCDMA.
By restricting China Mobile to a fledgling homegrown network, the government is nurturing TD-SCDMA with the country's largest telecoms company while allowing China Mobile's competitors to build their user bases. "These other technologies are ahead of TD-SCDMA, and if China Unicom and China Telecom can get out there with a 3G service faster than TD-SCDMA and China Mobile, they will pick up subscribers, and I think the government is willing to let that happen," says James. "I think it wants competition to produce the best technology."
Future Network Generations
Enduring the growing pains of developing the homegrown network could yield dividends later, however. Delays may have given China a chance to learn from the mistakes of the foreign market. "I actually think that, in the long run, the Chinese operators will benefit from waiting this long to have 3G," says Einstein, pointing out that "handset prices are cheaper; infrastructure is cheaper".
While TD-SCDMA has been a burden, China Mobile's existing market share should be enough to keep the mainland's largest network provider on top. "China Mobile has such a strong lead and such loyal users, I think it should not have too many problems building up a decent sized network," says Carini.
The existence of fully operational TD-SCDMA will also make transition to future networks – so-called 3.5G or 4G – easier. "If China Mobile has enough success with TD-SCDMA, then I think the government will be more likely to allow operators their own technology choices in the future," says Carini.
But if China intends on exporting mobile network technology soon, it will need to continue to play catch up to the rest of the world. "It may be able to convince some developing countries, but it's going to be a tough sell," warns Carini.
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