Though it’s never been scientifically proven, it’s
fairly safe to say that the Chinese are the most number-obsessed people
on earth. When municipalities hold auctions for vanity automobile
license plates, bidding for the lucky number 8 – whose pronunciation is
the same as that of the Mandarin word for “make profits" - often
reaches into the hundreds of thousands of dollars.
Similarly,
throughout China most high-rise apartment buildings and skyscrapers have
no fourth floor. The reason being that the number 4 is the unluckiest
of all numbers because its pronunciation is identical to that of the
Chinese word for death.
No one in China is equating the
numbers 133 with death, but it has proven to be a very unlucky number
for China Unicom, the nation’s second-largest mobile operator. 133 are
the first three digits for subscribers on China Unicom’s new CDMA
network that was launched in 12 of the country’s wealthiest provinces in
January of this year. And despite a society that is almost as obsessed
with its mobile phones as it is with lucky numbers, very few Chinese are
dialing 133.
China currently has 176 million mobile subscribers
– a figure that not only makes it far and away the world’s largest
wireless nation., but also points out the failure of CDMA to find an
audience in the world’s fastest growing mobile market. By the end of
June, Unicom had only 936,000 users, whereas in the first six months of
2002, the number of Chinese mobile subscribers grew by 31.35
million.
Its inability to attract more than 3 percent of this
year’s new subscribers has sent the company’s shares tumbling. In late
June, shares of China Unicom, which is publicly listed on Hong Kong’s
Hang Seng exchange, hit an all-time low of HK$5.90, with investors
worried the operator would have to resort to cost-cutting and incentives
to lure new subscribers onto its network.
The bigger question is
why has China Unicom’s CDMA offering fared so dismally in a market
growing by 4-5 million subscribers a month? Most analysts agree the
problem isn’t the technology. In neighboring Korea and Japan, CDMA has
been a big win for mobile operators. And in China CDMA is reportedly
living up to its promise of better voice
quality.
Trouble at the Top
So
what happened? CDMA’s torturous road to official acceptance is part of
the problem. Qualcomm, the San Diego-based corporation that invented
CDMA, began negotiating with the Chinese government for a CDMA network
in the early 1990s. Unlike European manufacturers, who entered the
wireless market primarily through deals with regional players, Qualcomm
embarked on a strategy of negotiating with the very highest officials –
enlisting no less a personage than Bill Clinton (whose commerce
secretary Bill Daley raised the issue at least three times with Prime
Minister Zhu Rhongji) in support of its cause.
Qualcomm’s value
proposition to the Chinese wasn’t just what it claimed was a superior
wireless technology. It also positioned CDMA as an antidote to foreign
dominance of the Chinese wireless market, pointing to South Korea as an
example, where Qualcomm had worked early on with manufacturers and
operators with the result that Korean companies were able dominate their
home market.
“Qualcomm had a good product and a good strategy
that appealed to domestic vendors, but it got tangled in politics
between US and China,” says Craig Watts, a telecom analyst with Norson
Telecom Consulting in Bejing. "It was turned into a bargaining chip
that the Chinese government could use.”
And use it they
did. When American warplanes bombed the Chinese Embassy in Belgrade in
1999, China’s CDMA plans were suddenly put on hold. But that was
nothing compared to the use of CDMA as a political football during the
protracted negotiations over China’s entry into the World Trade
Organization. As Terry Yen, a Beijing-based official with the CDMA
Development Group told Newsweek last year,” "China knew that
America cared about this issue. They've viewed CDMA as a way to
signal their displeasure with U.S. policy or events."
Not
surprisingly, it was Prime Minister Zhu Rongji who finally pushed the
deal through. The Chinese Prime Minister has long been viewed as the
nation’s biggest proponent for entry into the WTO. So it was seen as
more than a coincidence when after China gained full-fledged WTO
membership in December of last year, Unicom was able to launch its
network a month later.
Yesterday’s Network
Today
And therein lies the second problem with CDMA
in China. The network Unicom debuted in January 2002 is based on
Qualcomm’s CDMA95 technology – a standard the rest of the world is
busily migrating away from. With few exceptions, it offered Chinese
consumers little to differentiate itself from its GSM competitors. “CDMA
was such a fiasco getting off the ground,” says Norson’s Craig Watts.
“And when it finally did it was a network that was 2-3 years behind
schedule in a market where GSM is already running the
show.”
China Unicom’s marketing strategy didn’t help matters.
The company’s attempts to position its new network as the choice for
high-end users has largely failed to convince China’s early adopters to
make the switch. The biggest deterrents have been handset prices and
availability. Though China Unicom has been offering discounts and
bundling minutes, CDMA handset prices range from US $375 to $1000 in a
market where a GSM handset can be had for under $100.
What’s
more, these handsets are not generally available. “Even in Unicom’s
branded CDMA stores, you only find a two or three different models,”
says Kenneth Leung, chairman of Irwin Capital, a Hong Kong-based venture
capital and consulting firm that works with CDMA manufacturers in China
and Korea.
According to Leung, most of the 19 manufacturers
(Motorola and 18 mainland companies) who were given licenses to produce
CDMA handsets are taking a wait-and-see approach. “They’re not being
very aggressive in trying to start their own manufacturing,” says Leung.
“Most of them are just buying them from Korea on an OEM basis for $200
and reselling them in China for $375 to
$500.”
Through the Cdma
LookingGlass
Yet as strange as it may sound, Leung
and almost every other analyst believe that CDMA will be a success in
China. With China Unicom scheduled to roll out its CDMA2000 1x network
in Beijing and Shanghai in October, CDMA will finally have something
with which to differentiate itself. Most analysts feel the Chinese
market is ripe for 3G CDMA, which has already proved to be a huge hit in
neighboring Korea.
But unlike Korea, where the transition from
CDMA95 to CDMA2000 was a natural progression, China is dominated by GSM
and getting users to switch to a new system (not to mention changing
phone numbers) isn’t going to be easy. Leung anticipates the government
will use its price controls, possibly by lowering CDMA data rates, to
try and drive more users onto Unicom’s network.
In fact, many
feel CDMA will succeed simply because the government wants it to. “The
decision to adopt CDMA was basically state-mandated and one of the major
reasons the government supported CDMA was to cultivate the local
manufacturing industry, which it couldn’t do with GSM because local
players entered too late in the game,” explains Connie Hsu, a manager
with Pyramid Research in Hong Kong. “So they see CDMA as their
opportunity to develop a local mobile manufacturing industry that can
migrate on past 3G.”
That’s important to China. As is the
fact that China Unicom (which is partially state-owned) is one of the
mainland’s flagship companies and one of the few to be allowed to list
on a foreign stock exchange. Allowing it to fail, and squander a $1.5
billion investment, is simply not an option.
Yet CDMA’s
future in China remains murky at best. The government desperately
wants it to succeed. But just today it quashed plans for China Unicom
to hold an initial public offering on the Shanghai Stock Exchange.
According to the Shanghai Daily newspaper, China’s Securities Regulatory
Commission spiked the deal because it was afraid China Unicom’s $1.45
billion IPO – which would have been the largest in mainland history –
would sour an already sluggish
market.
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.