Update – May 13, 2009: Wow! MIIT approves a WiFi capable 3G handset. Read details > HERE
Update – April 24, 2009: Beijing. April 24. INTERFAX-CHINA - The Ministry of Industry and Information Technology (MIIT) has allowed mobile phone manufacturers to integrate China’s homegrown WAPI (WLAN Authentication and Privacy Infrastructure) standard into their handsets, a source at a domestic handset manufacturer told Interfax on April 22.
The source, who asked to not be identified, said that MIIT told a number of handset manufacturers on April 17 that both 2G and 3G handsets are now allowed to have integrated WAPI technology to allow users to access wireless broadband. Read details > HERE
MIIT mulling over WiFi policy for 3G smartphones
One egg that may now be in Apple’s Easter basket is an iPhone deal with China Unicom. While Apple and China Unicom may be on the same page, there could be one or two matters to clear up with China’s Ministry of Industry and Information Technology (MIIT). Namely a loosening up of WiFi restrictions and acceptance of iPhone and iPod Touch as approved gaming devices (similar to dispensation for Nintendo DS Lite). We’ll leave the gaming issue to another article on another day. Today the focus will be on WiFi.
What needs to be resolved? The MIIT has been favoring “indigenously innovated” WiFi technologies (WAPI vs. 802.11i) and has banned WiFi on 3G mobile phones. The logic for the ban appears to be the MIIT’s desire to protect carriers from voice over Internet protocol (VoIP) calling. The MIIT is also afraid that consumers will bypass carriers’ networks by way of WiFi that does not support China’s WAPI (Wireless LAN Authentication and Privacy Infrastructure) encryption protocols. WAPI is rumored to have backdoors that allow for Great Firewall snooping. More on China’s WAPI > HERE
This “no WiFi on 3G phones” policy has created unintended consequences and threatens to slow economic growth in China. Here’s a short list of the problems that the ban poses:
- The ban has created a huge blackmarket demand for WiFi enabled phones. It has been estimated that 50% of all mobile phone sales in China are through unauthorized channels.
- The demand for blackmarket handsets has helped to create a thriving “jail-braking” business, where entrepreneurs will unlock handsets and load them with “illegal in China” apps (e.g. Skype and other VoIP and tethering apps).
- China loses out on licensing fees for all blackmarket handset sales.
- Owners of blackmarket phones have little incentive to go “on contract” with carriers.
- Non-WiFi handset owners have a lower ARPU
There is another key issue … With so many blackmarket handsets flooding the market, carriers may have trouble selling their new non-WiFi 3G handsets. China Mobile has several “on the drawing board” customized TD-SCDMA models they would like to promote – Levono OPhone with China Mobile’s proprietary OS, HTC with the Android OS, and forthcoming TD models from Nokia. China Unicom will also be promoting several new WCDMA 3G models including new iPhone 3G models* (yes, possibly plural).
*Guesswork: iPhonAsia believes the iPhone deal with China Unicom will be announced either May 17 or June 9 and will launch mid to late summer. The important caveat is the necessary MIIT approval of the new iPhone models.
3G Smartphones with WiFi enabled will spur greater consumption of wireless value added services (WVAS). This will generate new revenues for carriers and third-party app/game developers. Yet, for now, the WiFi ban stands. While VoIP apps may not be allowed for the foreseeable future in China, the ban on WiFi will only hurt carriers’ ability to enjoy higher average revenue per user (APRU).
There may be some good news on the horizon. It is apparent that carriers and handset manufacturers have been lobbying the MIIT to overturn the WiFi ban. They have likely made the case that smartphones with 3G + WiFi will generate greater average revenue per user (ARPU) verses 3G alone. Moreover, the genie is out of the bottle. There are thousands of open WiFi networks in China’s urban zones, and there is no good way the control the blackmarket in handsets unless MIIT shifts its WiFi policy. For example, there are now some 500,000 iPhone 3G owners in China surfing on EDGE 2.5 G and WiFi. China Telecom and China Unicom can expect the blackmarket to upset their plans to bring more Chinese wireless users “on contract.” China Mobile too has an incentive to add WiFi to select models (e.g. TD HTC) as they can expect TD-SCDMA smartphones to stay on the store shelves if they do not include WiFi.
The best way to undercut the blackmarket is to allow WiFi on 3G smartphones and provide incentives for consumers to purchase authorized handsets and to go “on contract” for cool and fun WVAS (e.g. App Store, music, games, mobile TV, video chat, wave-to-pay, tethering and many pre-loaded apps). The bottom line … there is more money to be made with WiFi than without.
Let’s hope China’s MIIT acts in Chinese consumers’ interests and in China’s economic interests by allowing WiFi on new 3G smartphones in China.