The Standard That Roared
By Eric Ransdell, Tue Jan 07 16:46:07 GMT 2003

But the question remains whether the homegrown standard will get a wider industry support?

It is late to the market. It is still in development whereas its competitors have been up and running for almost a year. It has never been tested on a large scale. It has no infrastructure to run it. And it has almost no support among the major players of its industry. Yet the general consensus is that it's going to be a success.

Welcome to the strange world of time division synchronous code division multiple access or TD-SCDMA - a 3G standard that, under any other circumstances, would have almost no hope of competing with WCDMA and CDMA 2000 in the race to become the world's dominant next generation mobile communications standard. "This is a technology that should have be naturally de-selected years ago, it should have died on the vine simply because it's so far behind," says one European Union diplomat based in Shanghai. "but as strange as it seems, it's looking more and more like TD-SCDMA is going to emerge as the world's third 3G standard."

Why? Because TD-SCDMA is a Chinese 3G standard and in China, the world's largest mobile phone market, the old rules don't apply. 3G spectrum, for example, is given away for free by the Chinese government. That's good news for Chinese operators, but unlike the free-market spectrum auctions of Europe and the US, it enables the government, rather than the highest bidder, to have huge influence over which standards will prevail.

Which is exactly what happened when Beijing announced its 3G spectrum allocations on October 25. As expected, both WCDMA and CDMA 2000 received equal shares of the airwaves at 60 Mhz each. But what shocked many analysts was the whopping 155 Mhz of spectrum the government allocated to TD-SCDMA.

By giving its homegrown 3G standard two and a half times as much spectrum as WCDMA and CDMA 2000, the Chinese government demonstrated that it is willing to throw its considerable weight behind TD-SCDMA, which is being developed by Datang Telecom Corporation (a subsidiary of the government-run Chinese Academy of Telecommunications Technology) and Germany's Siemens Corporation.

The Road Not Yet Taken

"This has definitely spooked the industry here, because right now we have Datang and Siemens working on the technology, filing patents, and both are well on the road to having products," explains Craig Watts, an analyst with Norson Telecom in Beijing. "The problem is that none of the other vendors are on that same road, and if TD-SCDMA is going to be a major part of the Chinese market, the vendors need to get on the stick right now. So you have a situation where Nokia and Motorola are asking themselves, 'Should we develop a TD-SCDMA handset?', whereas before the announcement no one was even sure TD-SCDMA was going to be a reality."

In early January, Li Shihe, Datangıs chief technology officer told Reuters: "[TD-SCDMA] will be ready for large-scale commercial use in 2004 at the earliest." That announcement came only a few weeks after the government stated that it would delay its 3G rollout until an indeterminate date, which led many analysts to believe that Beijing is going to hold fire on 3G implementation until its homegrown standard has time to catch up.

"For the last three years people have been asking me when is 3G going to happen in China," says Connie Hsu, manager of Pyramid Research in Hong Kong. "And what I've been telling them is that it's going to happen when they've finally fixed all the glitches in TD-SCDMA, because I don't believe the Chinese government is going to let the other two standards come in without their own standard being sorted out first."

The real question is whether TD-SCDMA represents a threat or an opportunity to the rest of the wireless industry. To compete with WCDMA and CDMA 2000, TD-SCDMA would require the green field buildout of a new nationwide network. Though some analysts believe Beijing wouldnıt be willing to take such a huge gamble on an untested technology, Hsu thinks itıs a definite possibility. "I assume thatıs what theyıre going to do," she says. "Anything they adopt in China goes nationwide, it goes mass scale. And the fact is, the China market is big enough to support it."

If that is the case, TD-SCDMA would probably mirror the development of China Unicomıs CDMA network, which went live this year after an initial expenditure of $2.3 billion. In December, China Unicom announced that it had attracted 6.3 million subscribers to its new network, thereby ending its first year only 10 percent short of its goal of 7 million users.

For foreign manufacturers, CDMA has been boom to the bottom line. Lucent, Ericsson, Nortel and Motorola have been awarded more $1.3 billion in contracts for the new network. And in December, China Unicom announced that it would spend an additional $1.3 billion to upgrade its network to handle an anticipated 15 million new subscribers.

A new, nationwide TD-SCDMA network could represent a similar bonanza. Datang and Siemens, which recently announced that in 2003 they will spend $120 million and $50 million respectively to develop the new standard, are almost certain to grab the lionıs share. But with a new network costing between $2 3 billion, both foreign and domestic vendors could also expect a windfall.

3G on the Cheap

On the strategy side, the introduction of a TD-SCDMA network could also be very similar to that of China Unicomıs CDMA. In June, CDMA had attracted only 936,000 users, China Unicomıs share price was at an all-time low on Hong Kongıs Hang Seng Index and analysts were writing off the venture as a failure. But the Chinese government used its immense regulatory powers to allow China Unicom to slash prices, offer free minutes and other discounts previously unknown to the China market. For its part, China Unicom paid an estimated $250 million subsidizing CDMA handsets, which were criticized for being hugely overpriced. These measures proved to be a hit with Chinaıs cost-conscious consumers and resulted in almost 5.4 million new subscribers in the next 6 months.

Almost every analyst feels the government is willing to use that same kind of power to ensure the success of a new TD-SCDMA network. But big questions remain. A major factor in determining TD-SCDMA's success is whether the major telecom players, both domestic and international, decide to support it. The two mainland vendors whose support will be crucial - Huawei Electronics and Zhongxing Telecommunications - still appear to be holding back on embracing a technology they have little hope of exporting outside China. On the foreign vendor side, only Samsung has come out in support of TD-SCDMA, a move that surprised few given that the Korean vendor has supported almost every mobile standard ever announced. Even Siemens appears to be hedging its bets. As a Norson report observed, at the PT Expo Comm held recently in Beijing, the Siemens booth was divided evenly between TD-SCDMA and UMTS, which the company is developing for the European market.

The most likely scenario is that the government is going to use the issuance of 3G licenses to operators to push the industry to support TD-SCDMA. The current plan calls for four new licenses, two of which will be given to the country's existing mobile operators - China Mobile, the nation's largest operator which will upgrade its GSM network to WCDMA, and China Unicom, which will migrate to CDMA 2000 1X. The remaining 3G license will go to two new companies, China Netcom and China Telecom, with one of the two almost certain to have its license tied to the use of TD-SCDMA.

For the moment, most inside the industry feel that TD-SCDMA will be a reality in China, but that it's primarily going to be a supplemental technology that will be dwarfed by the 3G legacies of GSM and CDMA. Even the MII, which has called it a "patriotic technology", is being extremely conservative in its estimates. According to its most recent figures, the MII estimates the 3G market in the mainland by 2006 will be 65-70 percent WCDMA, 20 percent CDMA, and 10-15 percent TD-SCDMA.

"This isn't a case of the government asking what's good for the industry, they're asking what's good for China," explains Norson's Craig Watts. "It's a national issue and the whole idea of a Chinese 3G standard is that China wants to assert itself in the world. But the fact is, the government can only go so far. If the industry doesn't respond, then there will be no one to build it."

Eric Ransdell is the former Silicon Valley Bureau Chief for US News and World Report magazine. Now living in Shanghai, he covers mobile technology in Asia.