Rumor: China’s TD-SCDMA 3G may not be an eternal flame
Nothing is certain but change. China has made the 2008 Beijing Summer Olympic Games a deadline for launch of their new 3G network. While the Olympic flame burns brightly over the Beijing skyline, China Mobile engineers may be hard at work debugging a system that has yet to prove its Olympic mettle. Frustration continues to grow with the 3G trials and there are signs that the nascent TD-SCDMA protocol may fade out like the Olympic flame at a closing ceremony. The story of the day, however, is change, and change brings many opportunities. Here is what may soon transpire in the Chinese telecommunications industry (with emphasis on the word “may”) …
· China Telecom may be acquiring Unicom’s CDMA mobile business
· China Nation/Sate may level the playing field and foster direct competition in mobile
· W-CDMA may supplant TD-SCDMA in China.
· China Telecom and China Mobile may battle over rights to W-CDMA 3G license and network
While it may not be immediately apparent, all of the above will have implications for Apple in the “iPhone in China” negotiations (more detail below).
The headlines above are all outlined in a January 29, 2008 article published in Interfax China > China Mobile pessimistic about TD-SCDMA and in China Trade Information. The article implies that most TD-SCDMA problems are with the special test handsets built to support the new network … but the problems are apparently deeper and may be inherent with the TD-SCDMA network itself. The article also offers insights into China Telecom’s move into mobile and development of W-CDMA. Can you say “competition?!”… See> HERE
EXCERPT: China Mobile is pessimistic about the development of TD-SCDMA, China’s homegrown 3G standard, because of handset problems and the relative strength of other standards, an industry insider said today. The source also said that operators are already preparing to compete over who will develop a network for W-CDMA, the European 3G standard, after the TD-SCDMA network is in place. “Inside China Mobile, most people are actually not optimistic [about TD-SCDMA development],” the source, who wished to remain anonymous, told Interfax. The source said that China Mobile is working to ensure TD-SCDMA is ready in time for the Olympics in August, despite problems with the network and with handsets.
“China Mobile employees have been using TD-SCDMA handsets since November 2007 for testing purposes. They can use some 3G functions, such as video telephone and high-speed download. However, due to quality problems with TD-SCDMA handsets, the results of the trials have not been good,” …“However, even though there are many problems, the TD-SCDMA network will be put into use before the Olympics.”
The source said that TD-SCDMA handsets are encountering difficulties. “One reason [China Mobile is pessimistic about TD-SCDMA] is that TD-SCDMA handsets, which are produced in China, have serious problems.” The source added that the earliest that phone numbers for TD-SCDMA handsets will be released to the general public will be in May of this year. Compared with handsets supporting the W-CDMA network, TD-SCDMA handsets are much weaker in both quantity and quality, the source said.
Interesting … why should Apple [AAPL] shareholders and China iPhone fans care?
As the headline implies, China’s “still in gestation” Time Division Synchronous Code Division Multiple Access (TD-SCDMA) 3G protocol may not live long after birth. Why should iPhone fans care? Continual “issues” with TD-SCDMA may alter Apple’s next generation iPhone chipset development plans. The sub-headlines also have ramifications for Apple. If the rumors prove true, China Telecom may indeed be acquiring China Unicom’s CDMA mobile business (Unicom’s GSM division may be acquired by China Netcom). China Telecom will then be in the wireless business with CDMA (not related to CDMA2000) and will be granted a 3G license. iPhonAsia sources in Beijing have suggested that China Telecom will obtain W-CDMA 3G license. Update 5/29/08: iPhonAsia has reviewed numerous current reports which indicate that the newly formed China Uniom/Netcom will receive a W-CDMA 3G license when restructuring dust has settled (in 3 to 18 mos). If this proves true, China Unicom may become an alternative to China Mobile as a partner for Apple (iPhone) in China. It may also be possible for Apple to work with both carriers.
Note also the just announced 5/29/08 iPhone deal in Hong Kong and Macau with Hutchison Telecom Intl. Ltd. Hutchison runs a W-CDMA network in Macau.
The Jan 29 article (noting problems with TD-SCDMA) is based on information provided by an anonymous source, yet the piece is authoritative and was published by Interfax China and China Trade Information. This leaked news also reinforces information that iPhone in Asia was provided by a separate telecom source in China. It begs the question why this information would make its way into the public’s eye? This is potentially embarrassing for China Mobile and China Nation State. For several years now China has staked substantial national interest and billions of dollars (an estimated US $4 billion has been spent on infrastructure alone) into development of TD-SCDMA, a “China built” 3G mobile communications network.
China may have seen the TD-SCDMA problems coming months ago, as they took steps to ensure that multiple 3G networks could run in combination to support China’s existing mobile subscriber base. It appears that China is becoming more favorable to “technology neutral” standards in 3G. This move toward “neutrality” could give 3G alternatives a fighting chance and if problems persist, TD-SCDMA may fade into the background. W-CDMA is a mature 3G standard, widely used in Europe, and will allow many foreigners to use their “W-CDMA ready” handsets while in China.
Sidebar: It is no coincidence that two China-based companies are expending significant sums to expand W-CDMA> Huawei and ZTE are expanding penetration in CDMA and W-CDMA And in another “non-coincidence,” ZTE has just announced release of a new femtocell base station that can simultaneously support GSM, W-CDMA and can be modified to support CDMA and WiMAX.
Implications for “iPhone to China” Planning
This story changes the complexion of the iPhone “negotiations or not” drama, and it explains why Apple has not rushed to Beijing to engage in ‘immediate’ iPhone discussions. I believe Apple has known about the telecom restructuring and “TD” issues for many months. It may be why Apple has elected to begin serious discussions with other Pacific Rim nations ahead of the world’s largest mobile market. Apple might be better off to wait patiently while internal China telecom issues are digested and more clearly defined.
When the restructuring dust settles (later this summer), don’t be too surprised to hear about a multi-carrier deal – … follow the W-CDMA 3G … China Mobile and China Telecom IMHO will both win rights to run that protocol.
Why might Apple work with both carriers? Exclusivity may need to fly out the window in China. Apple will need China Mobile’s established EDGE/GPRS to offer the widest coverage while the W-CDMA network is in build phase (a one to two year project). NOTE: the next gen iPhone will very likely be backward compatible with EDGE/GPRS.
To build TD-SCDMA into iPhone or not?
China may take some time to issue W-CDMA and CDMA2000 3G licenses and they have yet abandon hope that TD-SCDMA will be technologically viable. But “unstable” and “does not operate well in cities” (tall building interference) does not sound too promising after so much work as gone into TD-SCDMA. Therefore, it is probable that Apple would resist any suggestion to work with their chip partners and build (design, refine and test) a sophisticated mobile chipset that supports TD-SCDMA.
The good news for Apple is that there are many nations who are anxious to get their hands on iPhone and a Pacific Rim launch sans China should be more than enough to get Apple to their 10 million iPhones in 2008 goal. Given China’s current focus on restructuring, my bet is that Apple will move with the rest of the Pacific Rim (SingTel, NTT DoCoMo, Optus, et. al.) before getting serious with China.
China will always be there with their 500 million and growing mobile handset users and there’s a good bet tens of thousands of next gen iPhones will make their way into China in 2008 … and many millions more thereafter.