Chinese Roulette

At ITU Telecom World in Hong Kong, Ericsson officials lay plans for mainland dominance

December 5, 2006

4 Min Read
Chinese Roulette

Planning for the advent of 3G networks in the world's largest mobile device market, the world's No. 1 wireless infrastructure vendor has forged key strategic partnerships and expects to be the dominant player in China, according to top officials from Ericsson AB (Nasdaq: ERIC).

"We aim to continuously consolidate and grow our leadership in China by strengthening our local organization and elevating local competence," Mats H Olsson, president of Ericsson Greater China, told reporters at the ITU Telecom World 2006 show in Hong Kong on Monday.

Ericsson's grand strategy for the burgeoning Chinese market is symbolized by the new Ericsson Tower, under construction in downtown Beijing and expected to open next month.

Western wireless vendors, who have for several years awaited the awarding of 3G operator licenses in China, have been busy forging partnerships that largely, for now, remain handshakes only. Hopes that officials of the People's Republic would make the highly anticipated 3G announcements at the ITU convention this week have so far been dashed. This is the first time that Telecom World, billed as the largest global gathering of the telecommunications industry, has been held in Asia.

So far, despite predictions that the PRC government needs to award licenses by early next year in order to have time to establish functioning 3G networks for the Beijing Olympics in August 2008, there has been no official word on when the licenses will be officially distributed.

Mainland operators such as China Mobile are assumed to be the only carriers with a realistic shot at obtaining 3G licenses; the big question is which flavor of 3G the government will choose to pursue.

Western vendors favor either W-CDMA, the European standard backed by Nokia and Ericsson, or the U.S. version known as CDMA 1000x. The leading candidate for China is a homegrown version called TD- SCDMA.

China's Ministry of Information Industry set TD-SCDMA as a national standard in January 2006, and it was thought at the time that carrier licenses could be issued within a few months. In February a timeline for deployment of the networks was issued, calling for trials to be complete by June. The testing has been delayed but is now thought to be complete. Chinese officials at the ITU conference have shed little light on when the actual roll-out will begin, or which technology will win out. (See 3G Nears Reality in China .)

"China will consider three standards for 3G," Wang Xudong, the PRC's information-industry minister, told the ITU crowd on Monday. "The timing for issuing 3G licenses will be determined by the market."

"There's been a lot of testing of TD SCDMA," said Albert Lu, Ericsson's deputy general manager for marketing and strategic planning in China, on Tuesday morning as he rode a bus through Hong Kong's busy Central district to the Hong Kong Convention Centre for the ITU show. "There is market speculation that we will have three standards in China once they get started, but that they might give some kind of advantage to TD-SCDMA by licensing that one ahead of the others."

In the absence of clear signals from the government, big vendors like Ericsson have been forced to hedge their bets by forming joint ventures with mainland partners in order to be able to service whichever networking standard emerges. Ericsson's primary partner is state-owned ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). Nokia Corp. (NYSE: NOK), meanwhile, owns 49 percent of a $111 million joint venture with mainland wireline vendor China Putian , while Siemens AG (NYSE: SI; Frankfurt: SIE), which is in the process of merging with Nokia, last year announced a partnership with Huawei Technologies Co. Ltd. . (See Huawei, Siemens Push 3G Deal, Ericsson Bets on Chinese 3G, and Nokia Invests in China 3G.)

Ericsson, Lu asserts, will be ready no matter which technology triumphs.

"We're preparing ourselves for whatever scenario comes out," Lu says. "Most especially, we are able already to provide a TD SCDMA solution as well, in addition to our WCDMA offering.

"TD-SCDMA uses exactly same core network as W-CDMA, and together with our partner ZTE we have already done interoperability testing for both standards, and they work together without any problem."

Ericsson is building its R&D staff in China by 30 percent a year, up to around 1000 today, and recently opened a new R&D center in Guangzhou, north of Hong Kong. The opening of the Ericsson Tower next month, the company hopes, will mark the opening of a new era for wireless network development in Asia.

The potential payoff is huge: It's estimated that China will spend dozens of billions in the next few years to build out its 3G infrastructure. Western vendors now hope that the licenses will be awarded in the first half of 2007.

"But this is China," says Lu. "You never know."

Spoken like a true China hand.

— Richard Martin, Senior Editor, Unstrung

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