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October 18, 2005 6:04 pm

Home-grown standard fights for a role

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Yang Hua is cheerleader-in-chief for the China-backed “third generation” mobile telephony standard known as TD-SCDMA – but even he admits the technology is far from a favourite among telephone operators.

The big carriers doubt TD-SCDMA’s maturity, have close ties to global equipment vendors that prefer the more established 3G standards WCDMA and CDMA2000, and worry that adopting a local alternative could cut them off from lucrative roaming services.

But Mr Yang, secretary general of the TD-SCDMA Industry Alliance, believes the Beijing-backed standard will play a “mainstream” role in China’s mobile telecoms future.

“The issue is not for the operators to decide,” he says. “The government will issue the 3G licences, and if a licence requires the use of TD-SCDMA, then that is what the operator must build. I believe there will be at least one national TD-SCDMA network.”

For Mr Yang and former employer Datang Telecom, the standard’s main backer, TD-SCDMA offers China a chance to establish itself as a source of core mobile telephone technologies and to give the domestic equipment manufacturing sector a competitive edge.

China is one of the world’s most important telecoms markets, but has never had much influence on industry standards. The result, some Chinese officials and analysts say, is that local companies have been forced to follow in the less profitable footsteps of global equipment makers instead of forging ahead.

To change the situation, Beijing turned to TD-SCDMA, a mobile telephone standard that is accepted internationally but which has been relatively neglected by manufacturers and regulators in Europe and the US.

Supporters say TD-SCDMA, or Time Division Synchronous Code Division Multiple Access, allows more efficient use of bandwidth than WCDMA or CDMA2000 and so will be better for the data services on which 3G service profits will rely.

Mr Yang also argues passionately that efficiency from low power “smart antennas” will help make TD-SCDMA networks up to 20 per cent cheaper than those based on WCDMA.

Datang says it owns most of the core patents for TD-SCDMA, and although that claim is contested by international rivals, such as Nokia and Qualcomm, adoption of the standard would reduce the flow out of China of technology licencing fees.

So why are even presumably patriotic state-controlled Chinese operators so unenthusiastic?

One key reason is that TD-SCDMA is still in development, while CDMA2000 and WCDMA networks are in operation around the world.

Mr Yang insists the core network technology is ready for commercial use – but he acknowledges that handsets will not be up to scratch until the end of this year at the earliest. Early adopters will be sure to face teething problems.

Even if initial setbacks are easily surmounted, the TD-SCDMA network will be of limited appeal to the high-income, far-travelling customers that are most valuable to operators, since their phones will not work abroad. And a TD-SCDMA operator will be unable to offer roaming services to overseas visitors, an increasingly important source of income.

Such concerns mean the big operators, all of which are listed in Hong Kong and the US, are likely to fiercely resist imposition of TD-SCDMA. Their arguments will carry weight with officials keen to preserve their profitability.

Even Chinese executives who want the government to do more to support domestic companies now appear highly doubtful about TD-SCDMA’s prospects.

“This is an important policy direction for the government, but it is very difficult and the result is still not clear,” says Hou Weigui of ZTE, one of China’s leading telecom equipment manufacturers.

“I hope there is a national [TD-SCDMA] network, but there are a lot of factors that will influence the scale of adoption and it is currently very hard to say what will happen,” Mr Hou says.

With so much national effort already invested in TD-SCDMA, few observers expect the standard to be dropped completely – but many say its role is most likely to be confined to a face-saving niche.

Executives at international equipment vendors talk of TD-SCDMA’s potential as a “complementary” technology for WCDMA networks, possibly in urban areas where extra capacity might be needed.

“Somebody will be required to deploy TD-SCDMA as part of their network, but it will be only part,” says Gordon Orr chairman of consultancy McKinsey for Greater China.

Such a result would be a huge disappointment to Datang, which has invested heavily in TD-SCDMA and is now bleeding red ink, but industry alliance chief Mr Yang shows no sign of dismay.

Once the standard is rolled out at home, he insists, it will win adopters around the world. “More and more people are already seeing the benefits it offers,” he says.

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