Global Economics

China's 3G Mobile Phone Mess


Endless delays in China to roll out a home-grown 3G technology could hit the country's tech competitiveness

Beijing's effort to transform China into a world-class player in next-generation mobile telephony is suffering a new setback. For years the government has been backing the development of a home-grown standard for 3G mobile phones. The hope is that this technology can compete with the two Western-developed ones in terms of network speeds, greater voice capacity, and a range of interactive data features.

Yet because of problems with the Chinese standard, called TD-SCDMA, the government has delayed issuing 3G licenses to Chinese telecom operators. Many people who follow the industry have expected that the government will finally break the logjam this year, in order to give operators enough time to have 3G networks up and running before the Summer Olympic Games in Beijing in August, 2008.

But the deadline keeps getting pushed back. Speaking at the ongoing meeting of China's National People's Congress in Beijing, the top telecom regulator was noncommittal on when 3G will finally happen.

According to the official People's Daily Web site, Information Industry Minister Wang Xudong said that "every effort is being made to grant licenses for third-generation [3G] mobiles to meet the demands of consumers." However, the newspaper added that Wang did not give any indication about when the ministry will actually award the licenses.

Too Many Delays

Skeptics point to reports that TD-SCDMA testing will continue until the end of the year as another sign that consumers will need to wait some more before being able to use 3G phones that are now common in many other world markets.

"We've been hearing that everything is right around the corner, but it seems like endless delays," says Dave Carini, manager with Maverick China Research, a Beijing-based telecom, media, and technology consulting firm. "It's been the same story for the last four or five years, and now everything we are hearing points in the same direction: more delays."

The reason, many believe, is that the government doesn't want to allow 3G in China until work on the Chinese-developed standard is complete. And that's proving difficult. Duncan Clark, managing director of BDA China, a market research firm based in Beijing, says that problems remain, such as poor picture quality for video calls. "It's not ready for prime time," he says.

Catching Up

One source of the difficulty in developing TD-SCDMA is that most other countries have already adopted competing standards, the Qualcomm (QCOM)-backed CDMA-2000 and UMTS, whose supporters include Nokia (NOK).

Because there's no market for TD-SCDMA handsets or equipment anywhere else in the world, the costs of developing phones for consumers and infrastructure for operators are higher.

So even when TD-SCDMA is finally ready, Chinese telecom operators are unlikely to embrace it. Chances are at least one of the state-owned operators will have no choice but to use it, but as a consolation prize they will also be allowed to operate the more popular and proven global standards. "I don't think any operators want it as their first choice," says Carini.

Waiting for Approval

The perils of 3G in China don't bode well for other projects backed by the government to hatch locally developed technology standards. In addition to 3G, Chinese engineers are working on their own versions of standards for radio frequency ID (RFID) chips, mobile TV, and wireless broadband. "There is a national, top-down initiative on all types of technology," says Clark.

Given the very public calls by President Hu Jintao for Chinese to push ahead in becoming innovators, the failure to date of China's grand 3G plans won't prompt a rethink from the government. "I don't see how they can reverse this," Clark says.

And how much longer will it take before the Chinese government gives the green light to 3G in China? Carini of Maverick says it's anyone's guess. "We don't even try to predict when it will come out," he says. "Everyone who has tried has been wrong."

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau .

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