With the SARS epidemic now out of sap, the land of wonton soup and TD-SCDMA technology is regaining its place on the front burner of wireless business.
Infected with a new elan for investment, vendors have announced a series of contracts and initiatives in China, revving up traffic within the country. Industry organizations and firms are rescheduling conferences and trade shows, which became major casualties of the disease.
Top executives and managers also have glowed about the market. “The Chinese market is strategically important to Ericsson,” said Carl-Henric Svanberg, president and chief executive of the Swedish vendor, when it announced a $600 million GSM expansion frame agreement with Guangdong Mobile in China last month.
“The investment reflects the increased importance of Lucent China in the overall worldwide strategy of Lucent Technologies,” said Jason Chi, chairman and president of Lucent Technologies Inc. in China after the company in June established its research and development center in Nanjing to further enhance third-generation technologies.
Motorola Inc. describes China now as “business as usual,” according to Amy Halm, spokeswoman for the company, adding, “we are seeing a little bit of growth activity again.”
But as the vendors tap a potential great revenue stream, big players have to contend with local players that are churning out increasingly competitive products in increasing numbers.
The other issue is the anticipated issuance of 3G licenses at the 2.1 GHz band, which is expected either at the end of this year or early next year.
But business did not exactly halt during the SARS interlude. “We’re seeing China back up after SARS,” said Rose Miller, director of China market management for Lucent. “During that time, things did not completely stop,” adding that the company put together its research and development center, expected to cost the company up to $50 million.
Nor is Lucent alone in the R&D activity. Alcatel Alsthom last week said it would spend a significant portion of its Chinese budget in 3G R&D technology. The total amount dedicated to its overall Chinese effort is $100 million, according to the company. The French vendor will increase by $45 million its investment in 3G infrastructure and application development in China.
“We firmly believe that China, an emerging hotbed of mobile applications, will take on a leading role in the field of 3G worldwide,” said Philippe Germond, president and chief operating officer of Alcatel. “Alcatel is fully committed to partnering with Chinese operators to develop successful 3G services, bringing our industry-leading solutions, world-class R&D, global experience and building this into a full long-term applications capability within China.”
Nortel Networks Ltd. said the country provides opportunity because of an upswing in subscriber usage during the SARS months, according to George Huang, vice president of wireless market and product line management at Nortel, noting the market expects to gain between 30 million and 50 million subscribers this year for GSM technology, the dominant protocol on the market. China Mobile is the main GSM operator.
But Nortel isn’t putting all its eggs in one technology basket. The vendor also entered into an agreement with Datang Mobile to commercialize Chinese homegrown technology, TD-SCDMA.
Meanwhile, Siemens AG announced it will partner with Chinese company Huawei Technologies Co. to promote TD-SCDMA. The two companies signed a memorandum of understanding to form a joint venture to develop, manufacture and market the technology. The new $100 million company will be based in Beijing, with Siemens holding 51 percent of the venture and Huawei holding the remaining 49 percent.
Siemens and Chinese company Datang Technologies were the main forces behind the development of TD-SCDMA technology. Siemens said it has invested $170 million so far in the technology.
Likewise, Intel Corp. last week underscored its interest in China, announcing plans to build a $375 million assembly and test plant in western China’s Sichuan province. The company said the plant will create 675 jobs, expected to be filled locally, and is scheduled to open in 2005. According to reports, the company plans to invest $200 million initially in the plant with another $175 million to follow.
“China is a huge market for Intel,” said Wee Theng Tang, president of Intel China. “The west China market is an important part of the overall equation as well. So it supports our agenda to put a site there that supports our business objective, which is growing the market and supporting the growth.”
Last year, China Unicom accumulated 10 million subscribers, but forecast it will increase its user base to 17 million at the end of this year. Nortel’s Huang said the two major carriers are differentiating themselves. China Mobile is focusing on quality of the networks and high-end users, while China Unicom is targeting the benefits of its CDMA2000 1x services with its multimedia possibilities.
The high-end market is pushing up average revenue per user to between $12 and $15 per month, although the majority of callers use prepaid services, Nortel’s Huang noted. By the end of this year, mobility subscribers are expected to outnumber fixed-line users in the country.
Nokia Corp. has not lagged in the market either. In March, the Finnish company merged its four manufacturing joint ventures, and they will support manufacturing bases in Beijing, Dougguan and Suzhou. Its main business is GSM, which has earned it 20 network customers.
The real challenge for these big players is the local vendors. “The Chinese manufacturers are becoming ever more competent at providing attractive and competitive GSM products particularly for their own market,” wrote Ivo Rutten, Philips Semiconductors’ vice president and general manager, business segment greater China. These local players are becoming so adept that they are targeting outside markets.
Channels likely will pose a problem for Chinese vendors going outside their country. “The large foreign brands in China have no access to such distribution networks and lack the essential local knowledge to build them,” commented Rutten. “The result is an increasing opportunity for local Chinese companies to gain market share, since the stronger growth potential now resides in the geographic areas where they reign.”
He noted that big players like Motorola and Nokia may lose market share to local upstarts like TCL and Bird with their “innovative phone offerings.”
And the conferences are back. A TD-SCDMA Forum was held recently in Beijing and the China 3G Summit, sponsored by the Chinese government with the collaboration of vendors and the International Telecommunication Union, is on track to meet in mid-September.
Licensing the 2.1 GHz 3G spectrum will trigger more business. Miller said companies do not yet know whether the Chinese government will allocate the licenses to CDMA2000, TD-SCDMA or W-CDMA technology.
