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Emerald Group Publishing Limited
Copyright © 2006, Emerald Group Publishing Limited
3G in China: an inscrutable tale
3G in China: an inscrutable tale
A regular column on the information industries
Technically there are two licensed mobile operators in China where receiving-party-pays (RPP) is the norm. The first, which comprises the largest network in the world, consists of China Mobile Communications and its listed subsidiary China Mobile (Hong Kong) where the latter has taken over the networks owned by the former. The other 2G licensee consists of China United Communications Corp. (CUCC) and its Hong Kong-listed subsidiary China Unicom Ltd (Unicom). Prior to the IPO of 20.2 per cent of Unicom, it had been made a subsidiary of China Unicom (Hong Kong) Group (CUHKG) which in turn was owned by CUCC which in turn was part of the China Unicom Group. Unicom is in the process of taking over all of the networks on the mainland. Unicom operates both GSM and CDMA 2G networks. It is trying to expand the latter as rapidly as possible but its initial success reflected heavily-subsidized handsets and promotional packages. Because of its switch towards CDMA, Unicom appears to be moving towards exclusive reliance upon cdma2000 for 3G. Given that the award of a further 2G license has been postponed several times, it may eventually be transposed into a 3G license. However, the situation is complicated by the fact that the two fixed-wire incumbents have unilaterally introduced a variant of the Japanese Personal Handyphone System (PHS) called the Personal Access System (PAS) in the main cities, and hence there is some confusion as to where precisely responsibility for licensing now lies.
The Chinese government has decided that, in principle, its immense internal market justifies the adoption of an independent solution. Rather than be forced to rely exclusively upon imported technology, it has accordingly also adopted the TD-SCDMA standard, developed by the Chinese Academy of Telecommunications Technology (CATT), Datang Telecom Technology & Industry Group and Siemens, which has been accepted by the ITU as meeting IMT-2000 criteria and which is being harmonized with TD-CDMA. Nortel Networks and Motorola have also agreed to develop the technology. However, Siemens has stated that the technology is incompatible with cdma2000 although it can probably be rendered compatible with UMTS. The virtue of adopting TD-SCDMA is the absence of fights over patents and it will be relatively cheap to roll out. During 2000 a forum was set up for TD-SCDMA led by Datang in which the CATT is a major shareholder.
For a lengthy period, the government declined to announce procedures for awarding 3G licenses, and although the Chinese carriers all endorsed TD-SCDMA, it remained unclear whether they would be forced to adopt it - the Ministry of Information Industry (MII) indicated that carriers would be able to choose whichever technology they preferred. The operators accordingly contented themselves with the major task of developing 2.5G. China Mobile Communications and China Mobile (HK) indicated a clear preference for W-CDMA for 3G, and initially hoped to launch a W-CDMA service at the end of 2003. Meanwhile, China United and China Unicom appeared to be moving towards the cdma2000 camp.
A major field trial of TD-SCDMA was announced in July 2001 and was expected to last for one year commencing October 2001. Provided the technology was at least as good as its competitors - the prevailing view was that it would be used to boost capacity in local areas rather than nationally as it is not optimal for wide area coverage - it would be formally approved by the government. The selection of successful contractors was to have been made early in 2002. However, it became apparent that there were problems with chipsets, handset power consumption and handset design. Meanwhile, the government issued an invitation to Samsung, Motorola, Lucent and four other equipment suppliers to demonstrate trial cdma2000 1xRTT networks in separate regions. In addition, the Evolium joint venture between Alcatel and Fujitsu successfully demonstrated an end-to-end W-CDMA application in Beijing, and, in December 2001, the government selected eleven vendors to take part in technical trials of W-CDMA in early 2002. After a short-list of vendors was drawn up, field trials took place on a variety of networks lasting up to one year.
Subsequent upon the announcement of plans to split fixed-wire incumbent China Telecom into northern and southern halves, with the former to be merged with China Netcom and Jitong Communications to form China Netcom Jitong, it was suggested that each half would be awarded a TD-SCDMA licence. In June 2002, it was rumored that the government had authorized Siemens and Datang to build a TD-SCDMA network. However, Siemens denied this, pointing out that no licences had as yet been awarded, and Datang indicated that it would take over a year to get a network up and running. Meanwhile, trials of the test network that had been fully operational since October 2001 would continue through the end of 2002.
During 2002, China Unicom began rolling out a new CDMA network to supplement its already sizeable GSM operation, and in September it announced that it had contracted with Samsung for the provision of 700,000 cdma2000 handsets, of which some would be compatible with a new cdma2000 1xRTT network that Unicom expected to launch in early 2003. The number of CDMA subscribers reached two million in August 2002 and four million by mid-October, suggesting that the target of seven million by the year-end, previously widely derided by analysts, might still be achievable, in part by recourse to discounts on two-year subscriptions. Meanwhile, China Mobile’s GPRS network, launched in China and Hong Kong in May 2002, had signed up one million subscribers by the end of June although only one in five of these were active users.
It came as something of a surprise when the government announced the setting up of the TD-SCDMA Industrial Alliance in early November with a remit to develop the technology. Of particular significance was the MII’s decision to earmark 55 MHz of spectrum for TD-SCDMA plus a further 100 MHz in the future while allocating only one block of 60 MHz apiece for W-CDMA and cdma2000 plus 30 MHz apiece in the future. Not everyone was convinced about the significance of this announcement, arguing that international roaming would be precluded for TD-SCDMA subscribers, and that the MII wanted to keep equipment manufacturers other than Siemens on their toes. Nevertheless, Datang and Siemens both subsequently announced their intention to keep investing in the technology with a view to a commercial launch in late 2004, and Datang claimed that progress with GSM/TD-SCDMA chipsets in collaboration with Philips and Samsung (acting via a joint venture, T3G formed in January 2003 with Datang and Philips each owning 40 per cent and Samsung 20 per cent) would enable the first products, probably for laptop computers, to be marketed during late 2003 and dual-mode W-CDMA/TD-SCDMA chipsets to be incorporated in equipment in 2004. Datang fell into dispute with Qualcomm as to the latter’s right to royalties for TD-SCDMA technology which Datang argued was largely developed by the Chinese. Meanwhile, conflicting signals continued to emanate from various parties as to whether any existing or yet-to-be-licensed operator would be forced to adopt TD-SCDMA.
However, in January 2003, it was alleged that the government had decided to permit three operators in each province, and to achieve this had determined that China Telecom and China Netcom would obtain licences in each other’s territories. At the same time, the planners offered three possible scenarios to the State Council for consideration, namely: let all four operators choose their own technology; let China Mobile (HK) adopt W-CDMA and China Unicom adopt cdma2000 while the new entrants both adopt TD-SCDMA; and let the new entrants choose to adopt their own technology but with the proviso that they use TD-SCDMA in designated areas as their primary networks. In March, the situation was further complicated by the decision to prevent China Telecom and China Netcom from developing 2G CDMA networks. In April, Ericsson announced that it had deployed a multi-access network based on cdma2000 and W-LANs for China Unicom in the Sichuan province – at the time the cdma2000 network extended across the Jiangsu, Anhui, Sichuan, Yunnan, Henan, Heilongjiang and Liaoning provinces. It also stated that it had successfully tested cdma2000 1xEV-DO over the 2.1 GHz band.
In October 2003, a dispute erupted in public between Siemens and Datang. Siemens, anxious to obtain some return on its investment in TD-SCDMA, was intent upon pushing the government to support the existing “proprietary” version of the technology whereas Datang preferred to wait until the 3GPP compliant low chip rate (LCR) version (TDD-LCR) had been fully tested as suitable for use elsewhere, probably in 2005. As a consequence, Siemens had linked up with Huawei Technologies, but the government was said to favour Datang’s strategy even though the Siemens’ version, now known as TSM (TD-SCDMA System for Mobile), was ready for full-scale testing. In effect, TSM combined a TD-SCDMA Radio Access Channel with an existing GSM core network, obviating the need to move towards 3G by building a new network. According to Siemens, TSM would be just as useful as TDD-LCR for 3G licensees with unpaired TDD spectrum.
In February 2004, having broken off relations with Datang on the grounds of unsatisfactory progress, Siemens forged a new joint venture with Huawei Technologies with a view to developing a somewhat different version of TD-SCDMA. Siemens evidently believed that this version would ultimately prevail, but sceptics felt that Huawei was simply trying to gain brownie points with the government.
At the end of the day, Chinese policy towards 3G is probably best described as “inscrutable” and left at that. Certainly, messages are contradictory. One, from a non-governmental source in April 2004, indicated that no licences would be issued in 2004 and 2005, and possibly not ever. On the other hand, the MII sponsored a small-scale field test conducted by Alcatel and China Telecom commencing in May 2004 and the Industry Vice-Minister announced in June that operators would be free to choose whatever technology best suited them. A subsequent report from the China Academy of Telecom Research, part of the MII, indicated that the May tests, completed in September, had gone fairly well although the Datang handsets had only been capable of operating at 64 kbps. However, a subsequent update in November indicated that TD-SCDMA had not performed anything like as well as the established alternatives due to a lack of workable handsets and dubious stability and poor reliability of the core network. Nevertheless, Datang did manage to demonstrate the first TD-SCDMA videophone in Beijing in December, 2004. Yet another interested party, the National Development and Reform Commission, recommended to the State Council in November that four 3G licences be issued, two (allocated to China Telecom and China Netcom) using TD-SCDMA while China Mobile went ahead with W-CDMA and Unicom with cdma2000. Despite this, China Netcom decided to press ahead with a field trial of W-CDMA, contracting Alcatel to set up its Evolium solution in December. As recently as March, 2005, the MII indicated that three licences would be issued and that they would not necessarily be for national coverage. However, the report on TD-SCDMA leaked in June, 2005 indicated that the standard was still underperforming and would not be ready before the year-end, so the licensing process was once again in abeyance.
Although there are officially only two cellular networks in China, the status of the Xiaolingtong PAS service operated by China Telecom was effectively upgraded to a full cellular service when the MII approved the roll-out of SMS interconnection with the incumbents as from March, 2004. However, it is not viewed as a substitute for cellular by most customers (of whom there were 48 million at the end of March 2005), most of whom would prefer to be on GSM or CDMA if they could afford it. Nevertheless, China Telecom and China Netcom are continuing to invest in PAS, and with the appearance of dual-mode PAS/GSM handsets, it has become possible for PAS subscribers to roam while out of range of PAS masts, thereby overcoming one of the main drawbacks to PAS compared to “proper” 2G cellular technologies. In June 2004, US-based UTStarcom announced the launch of dual-mode handsets, one range covering PAS/W-CDMA, the other PAS/cdma2000 1xEV-DO. Despite this, the fixed-wire incumbents remain interested in rolling out a 3G network – China Telecom appeared to be intent upon contracting for a significant volume of W-CDMA handsets in August 2004 and announced in October that it would be setting up an experimental W-CDMA network in Beijing in early 2005 using equipment supplied by Nokia and Huawei Technologies. Alternatively, China Telecom would prefer to avoid the need for a greenfield start-up by acquiring, together with China Netcom, either the GSM or the CDMA network owned by China Unicom (which objected strenuously to any such possibility).
In July 2005, China Mobile applied for a W-CDMA licence. However, it also retained an interest in TD-SCDMA, combining with China Unicom, China Telecom, China Netcom, China TieTong and China Satcom to construct a trial network built by ZTE using this technology in Beijing and Shanghai, commencing in December. Nevertheless, it was apparent where its real interests lay since by the end of 2005 subsidiary Beijing Mobile had already rolled out the first part of its city-wide network. Not to be outdone, and probably anticipating what would happen if China Mobile was allocated a W-CDMA licence, China Unicom subsidiary Beijing Unicom had simultaneously set up twenty cdma2000 1xEV-DO base stations.
Concerned that the roll-out of TD-SCDMA would run into difficulties when users reached the edge of the network and lost their connection, Datang announced (in conjunction with US-based Analog Devices) the successful trial of a TD-SCDMA/GSM dual-mode solution, branded DTivy A2000, in January 2006. Shortly thereafter, the government announced that TD-SCDMA had been selected as a national standard and that network construction would shortly commence, leading observers to conclude that the first 3G licence would be awarded for this technology, probably to China Telecom. This was supported by rumours circulating in February to the effect that, firstly, the MII had authorised China Mobile, China Telecom and China Netcom to build separate pre-commercial TD-SCDMA networks, each serving 3,000 customers, and that it had ordered mobile operators to cease work on all trial W-CDMA networks, of which up to eighty had been initiated without proper authorization.
From this point on, it is anyone’s guess what will transpire.
Peter CurwenVisiting Professor of Telecommunications at the Strathclyde Business School, Glasgow, UK. E-mail: firstname.lastname@example.org