CDMA's ‘big China win’ recedes as trade talks stall

As the embattled standard fails to go live in China, GSM and TDMA are stealing all the prizes

Stuck in an insipid Sino-American remake of "Groundhog Day", telecom investors have been once again forced to relive one particular event. It's that tantalising 'CDMA conquers China... next week' moment. By now, the plot is wearing thin. To make matters that much worse, few of us can emulate Bill Murray's character and wake up next morning sharing a pillow with a sultry Southern ex-model. What we're left with is the same loop of hope and hype ending in yet another anti-climax. The last time we were taken for a ride was Clinton's visit to China during the summer of 1998. Remember? Huge CDMA network deals... resolution of trade conflicts... a new dawn for Asian telecom markets. That's what was promised before the 1998 trip - and the results were strikingly similar to the Chinese premier's visit to USA in 1999. A whole lot of promises with nothing concrete to point at. The big irony of last week's events lay in the fact that Zhu Rongji was the one Chinese top official ready to make concessions in introducing CDMA. He was the guy who staked his credibility on the trip and tried to force the nationwide CDMA introduction through despite the fierce opposition of MII bureaucrats and some of his worst political rivals. Getting WTO membership would have vindicated Zhu's position - he probably would have been able to force MII to go along if he had the WTO membership to show how useful the CDMA gambit had been in the negotiations. And this was the guy Clinton decided to slap down publicly in last week's trip. Time will tell how much damage the failed trip did to Zhu. During the Friday afternoon both Clinton and Zhu were still all smiles - but only a few hours later the tone had changed. ``If you want too much too soon, in the end you may wind up with nothing,'' Zhu Rongji said. He then added that China was prepared to open up its telecommunications sector and if Americans passed up the opportunity to become involved, China would turn to Europe. These comments reflected Zhu's suddenly weakened position in the Beijing politics. He had risked a lot in making sizable concessions. Now his opponents can easily portray him as a sell-out who couldn't even deliver on his promises. Not exactly the ending that international news organizations had scripted for last week. The trip had been preceded by a massive spin attack. "China embraces CDMA", "China bows down to US pressure", etc., etc. All eerily reminiscent of the news coverage preceding Clinton's 1998 trip to Beijing. As previously, I suspect that a collective amnesia will now take place. Before the trip it was repeated over and over that this was the last chance for China to get the WTO membership: it would be now or next century. The moment it became obvious that the deal was not going to be made, a furious spinning started. Now we're told that actually next autumn is the big moment. That's the real last chance. That's when the massive CDMA expansion will really start. Great. It just might. But I wouldn't bet two dollars on that actually happening. A fable One of the most beloved Estonian bedtime stories concerns a young girl whose Liddy Dole-like mother promises that she can marry her beau after she has worn down a pair of shoes doing domestic chores. A slight downside: the slippers are made of wood. Next thing you know, the old gargoyle has switched shoe material to glass and eventually to iron - all the while offering syrupy smiles and words of encouragement. The relevance of this proto-Freudian Baltic fable? China's Ministry of Information Industry is one mean mother to mess with. When the USA pushed China hard to adopt CDMA, MII gave a go-ahead to the construction of CDMA networks in 1997 - but only around four cities and for non-commercial uses. When MII was pressed for more, they announced that CDMA is undergoing "feasibility studies". Those have gone on for two years now. During the present WTO negotiations China was asked to close more CDMA network deals - and they ordered two Mickey Mouse expansions worth maybe $20 million each. New shoes keep showing up, each postponing the nationwide implementation of CDMA. Meanwhile, GSM is adding 1 million new Chinese subscribers each month. There are two nationwide mobile operators in China - the enormous China Telecom and the upstart China Unicom. The big news of recent weeks has been the escalation of China Unicom's GSM expansion plans. This operator has all along said that it will unroll both GSM and CDMA networks. But time is running out as China Telecom's lead in total subscribers keeps expanding. Unicom's decision to step up the GSM expansion to stay in the game was underlined by the biggest GSM network order in company history earlier this month. Another landmark was the decision to start ordering GSM networks from a new manufacturer, giving Unicom the opportunity to play its contractors against each other in bidding competitions. And how were these developments covered by international news organisations? Well - they weren't. Everybody was so busy analysing the enormous impact of the CDMA network deals to be announced during Zhu's visit to Washington. Meanwhile, China Telecom may be splintered to four competing GSM operators to foster new competition. That would result in five GSM operators in China, all offering nationwide roaming and handsets that function with all the other operators. This is the formula for explosive growth that all leading mobile phone markets in the world have - two to five competing operators using one standard and the possibility for consumers to switch carriers at will and take their old phones with them. If the WTO deal materialises, western operators finally get a chance to buy big chunks of Chinese operators. The first in line are AT&T and British Telecom. These two companies already have extensive co-operation with China Telecom - AT&T has 100 employees in China even now. BT just bought a 20 per cent stake in Hong Kong's third biggest mobile operator. Which happens to have China Telecom as a major stakeholder. And here lies another irony: the US demands for a bigger role for Western mobile operators in the Chinese market were designed to help CDMA to gain a big foothold. But the actual result will be a stampede of TDMA and GSM operators into China. Europe's cash-rich, successful GSM operators will not sit back and watch British Telecom monopolise the Chinese market. Some pan-European giant like Vodafone or Mannesmann will probably jump at China Unicom the moment the Chinese telecom market becomes deregulated. BT and AT&T are planning to increase their stake in China Telecom or target one of the four baby telecoms if China Telecom gets broken up. These decisions are driven by economics: many GSM operators are wildy profitable at the time most US CDMA operators are still posting losses every quarter and have yet to finish their network build-up even in America. The enormous run-ups in the share prices of Vodafone, Mannesmann, Telecom Italia Mobile etc. give them considerable leverage in funding ambitious Asian expansion. In recent weeks Wall Street has taken a decidedly Candide-like approach to CDMA's prospects in China. Every turn of events has been explained as taking place in the best of all possible worlds. The reality will most likely reassert itself in coming months - as it did after Clinton's visit to China in 1998. ®