For iPhonAsia readers interested in learning more about the direction of the telecom industry in China and India, I highly recommend a PowerPoint presentation developed by Duncan Clark, Chairman BDA Connect – a Beijing based consultancy and investment advisory firm. This material was presented at the January 2008 Pacific Telecom Conference in Hawaii. See > HERE
iPhonAsia thoughts on the future of 3G and Telecom in China
As outlined in detail through previous iPhonAsia posts, China has now initiated a sweeping restructuring of the nation’s telecom industry. All of the major wireless and fixed-line carriers in China are majority state-owned and like it or not, they will follow the “encouragements” of central authorities.
In the aftermath of restructuring, there will be three (3) newly re-organized China carriers – China Mobile, China Telecom and China Unicom – and each will eventually receive a 3G license. Last May (2007) China made it clear that there would be three (3) third-generation (3G) standards approved for use: China’s “indigenously innovated” TD-SCDMA, along with global standards W-CDMA and CDMA2000.
TD-SCDMA May Not be an Eternal Flame
China has been deliberately coy about how the 3G licenses will be distributed amongst the newly constituted China carriers. According to the China Ministries overseeing this process, 3G licenses will be on hold until the China telecom industry restructuring has been completed (an estimated 3 to 18 months). This delay is really a subterfuge that buys time for the nascent “China built” TD-SCDMA 3G to overcome its many technical shortcomings. Billions have been spent on TD-SCDMA and it’s years late. The “TD” network was originally scheduled to launch in 2002 and there have been many missed deadlines. At this stage, there is serious doubt that China will ever see any return on their “TD” investment. Being late has its consequences. Movie buffs may recall the 1973 film the Paper Chase depicting life in the fast-lane at Harvard Law School… When the deadline for dissertations passes, they replace the inbox with a trashcan. And in another poignant “don’t be late” moment… Mr. Hart (Timothy Bottoms) is asked to do an elective research project for the venerable Professor Kingsfield (John Houseman). Anxious to impress, Hart labors diligently (all day and all night) yet far too long over his assignment. When the thoroughly exhausted Mr. Hart rushes his finished product to the professor’s doorstep …
“You’re late Mr. Hart … When your contribution was not in my inbox on Tuesday as promised, I gave your assignment to a graduate student to finish … So you see Mr. Hart, your contribution to my treatise is no longer necessary.” (With that he closes the door in Mr. Hart’s face without even a “Thanks for the effort”).
See YouTube (different scene) > Paper Chase
The “hard cold truth” is that TD-SCDMA is very late and has major flaws. Hence, there is serious doubt about it ever becoming a viable standard. The good news is that there are alternative world-standard 3G protocols that can be ramped-up quickly to meet the China users’ high-speed demands for mobile TV, video play-back (iChatting we hope) messaging and other value-added services.
The TD-SCDMA experiment will almost certainly go forward but China’s wireless consumers will vote their approval (or lack there of) through their keystrokes. If China Mobile’s Monternet platform usage drops-off, so to will average-revenue-per-user (ARPU). It is my view that China Mobile will not long tolerate TD’s technical glitches. If problems persist, China Mobile and its corporate allies will ratchet up their private dissention over the State’s mandate to support the TD standard. Despite TD’s dimming prospects, there is national “face” to be lost if TD-SCDMA does not demonstrate its ability to fly … Think Spruce Goose. Based on the political realities in China (SASAC vs NDRC) and State Council’s need to follow directives from the very top, China’s TD 3G may need to take flight and triumphantly circle the Olympic cities. Whether TD-SCDMA will then be parked in a giant hanger remains a subject for debate.
The Future of 3G in China
If China is adamant that TD-SCDMA must reign-supreme, the Ministry of Information & Industry may choose to delay issuance of the 3G licenses until late 2009. In my view China cabinet officials will be making a serious mistake if they drag out issuance of 3G licenses past the Olympics. Government shouldn’t be in the business of picking technologies and providing excessive advantages to TD-SCDMA would be folly. History often repeats and punishes those who fail to learn. China needn’t look far for a “state standards” failed experiment. In the 1990s Japan effectively walled off their telecom market by dictating a national wireless standard known as Personal Digital Cellular (PDC). Foreign tourists and business travelers couldn’t use their handsets while visiting in Japan and the PDC experiment ultimately failed. Now Japan has adopted world wireless standards, notably W-CDMA and CDMA2000, and they are taking a leadership role in advancing 3G standards.
China 3G License Sleuthing
It has been assumed that each China wireless carrier would obtain just one (1) of the state approved 3G protocols (TD-SCDMA, W-CDMA and CDMA2000). That assumption is most likely wrong. The only virtual certainty is that China Mobile will be assigned the TD-SCDMA standard and will be obligated to put forth “best efforts” to make TD-SCDMA work. Yet China Mobile understands that this task is daunting and hence they will need a backup plan. Call it a 3G disaster-recovery plan. One such plan would be to leapfrog 3G and developed a new standard based on the promising Long-term Evolution (LTE) protocol. China Mobile has in fact already committed to development of 4G LTE. Despite its promise, LTE is indeed “long-term” and practical implementation of an LTE network remains a 2010 and beyond project. China needs a reliable high-speed network now. China Mobile’s best disaster-recovery plan may be to obtain a second 3G license. Wang Jianzhou, China Mobile’s Chairman, was rumored to be retiring. Yet very recently we have learned that he will be staying on in his CEO role. Wang knows how to build out networks and it is possible that he is staying with the foreknowledge that W-CDMA is “in the bag” for China Mobile.
Bottom-line … my best guesswork suggests that China Mobile and China Unicom will both receive TD-SCDMA and W-CDMA 3G licenses. China Telecom gets CDMA2000. Update: 8/19/2008 – MIIT has rejected a plan by China Mobile to adopt both WCDMA and TD-SCDMA standards. Full Article > HERE
To carry my Spruce Goose metaphor a bit further, China Mobile will pilot TD-SCDMA. If the State has serious designs on a cross-China “TD” flight-plan, China Unicom will likely be in the Navigator’s seat for the journey.
Update 6/09/08: CNBC’s Jim Goldman sat down for a post WWDC 2008 Keynote interview with Steve Jobs … key subjects – 3G iPhone, lower price, SDK & new app store and “I think you’ll see those (China & Russia) happen later this year”.
Discussion points: 3G launch, pricing and market-share + Steve Jobs’ mention of China & Russia + discussion of AAPL performance > HERE
Confirmed: 6 million iPhones sold since initial launch!
Steve Jobs June 9, 2008:
“The two big ones we just didn’t have a chance to get closed were Russia and China… and I think you’ll see those happen later this year… we have to get through the regulatory bodies in China, which we’re in the process of doing, and I think later on this year you’ll hear some announcements. 70 countries is a lot of countries and we’re launching 22 of the biggest on July 11th”
Primary video interview > HERE