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Occidents will happen: China rips up the 3G rulebook

Philips boosts "royalty-free" TD-SCDMA with T3G

My, how times have changed for American business since the early 1970s. Doing business with the rest of the world was so easy, back then.

In those days, if a strategic American business, say, someone like a United Fruit Company or a Kennecott Copper found oversees dealings meddlesome, it could always find a sympathetic voice in the state department and the necessary arrangements would be made.

But now those golden days of "public-private partnerships" are gone, so what's a Qualcomm to do when China refuses to pay the CDMA tax that it requests from the rest of the world?

Qualcomm has uniquely managed to identify itself with the American national interest, even though this has been detrimental to the American economy by handicapping its manufacturers, who just want to sell lots of stuff that other people might want to buy, adding to the national balance of payments. When international trade negotiations are held, the US bats for Qualcomm. It's official.

This in itself is fascinating - how did great American manufacturers like Texas Instruments and Motorola find themselves playing second fiddle to a small, upstart IP-hoarder? That would take a book to explain.

Some suggest CDMA's heritage as a technology favored by the US military, noting the presence of high profile mil-ind complex regular guys such as Brent Scowcroft - a former spook-minder in his capacity as national security advisor - on the board. But you have to look at the relationship between tech huckster George Gilder and finance capitalists looking to engineer a speculative bubble is for the real clues.

Their mutual willingness to suspend traditional business relationships and investment rules to allow a Qualcomm to happen so defies rational common sense, that it borders on the occult. Not surprisingly, a lot of the company's defenders sound like complete dingbats.

Very sorry to know you

You see, 3G is CDMA-based. Ericsson and Nokia had also decided that CDMA techniques were inevitable but lacked the focus or urgency, or maybe the engineering brilliance of Qualcomm's wireless warriors - and the skirmish left Qualcomm holding a small but significant (40 per cent) number of CDMA patents.

So the company had two options ahead of it. It could have chosen the high road. Qualcomm could have become a godfather to all the world's CDMA, 3G manufacturers and adopted an appropriate business model, much like ARM did by licensing its cores. ARM, not x86, is the most popular CPU instruction set in the world. In this position, Qualcomm would have had the added bonus of asking for lucrative consulting fees, as testing and integration are extremely difficult, and carriers and terminal manufacturers would have been grateful to have field engineers who knew how to make this work. And this is an option that Qualcomm actually considered at great length.

Or it could have taken the low road. It could come to the negotiating table with the assumption that it had simply invented everything already, that the furreners across the table were a bunch of ignorant, and very definitely European hicks, and should pay what was required. This involved the more lucrative - in the short term, at least - option of manufacturing chipsets.

Guess what they did?

Of course having read this far, you already know. Qualcomm's misfortune is that it's a telcomms company headed by the least appropriate telcomms-type personalities you could imagine. Dropping the Jacobs into the wireless business was like dropping polecats into a kindergarten. The existing wireless leaders engaged in much patent trading to build a market from which they could all benefit. But Qualcomm didn't want to play by those rules. Qualcomm's patent portfolio wasn't enough to take over the world, but crucially, it was enough to screw everyone else if they chose to play dirty, and that's what Qualcomm chose to do. And it's been playing polecat politics ever since.

Er, this isn't some weird vendetta of ours, and for once, we're not being contrarian for the sake of it. We actually think Qualcomm morally deserves its dues, because it's earned them.

No, it's just the opinion of every wireless manufacturer - many of whom are Qualcomm partners - that we've ever met. And we talk to a lot of people. A "trade", by definition, is an exchange of mutual interest to both parties. An exchange which follows a demand such as "I'll hit you with this stick if you don't take my product" is at its very basest, a mutual exchange of interests. Because the buyer doesn't want to be hit by a stick. But it's very demeaning to the buyer, and isn't exactly conducive to harmonious future relationships.

And Qualcomm is a company that's unloved even by its closest allies:

"Seven years ago we did not have international experience, we are just now starting joint venture work," Seon Jong Chung, president of Korean Electronics and Telecommunications Research Institute (ETRI) once said. "So seven years ago we followed Qualcomm and the US way. At the time, the US way was more advanced than ours. Later on we found that the US way was not the international way. I'm very sorry, but we committed to such a mistake. We didn't use the modern, standardization approach."

Of course choosing to go Polecat™ [patent pending] requires an expensive and elaborate campaign of deception, one that persuades the trade press to parrot the line that Qualcomm owned all the CDMA patents.

[Which has worked: cf."CDMA, which runs about 20 percent of the world's wireless networks, is a proprietary standard . Qualcomm owns the patents." Hello, fact checker?]

But with the Europeans agreeing to pay a 5 per cent royalty to Qualcomm for using their patents in their own flavor of CDMA, WCDMA, what would the Chinese do?

Surfing the Sino wave

Well, naturally the Chinese went off and did their own thing. And very clever it is, too.

Shunning both Qualcomm's CDMA and the multi-vendor alternative WCDMA, it developed a cheap overlay to the popular GSM networks that are the already most prevalent in China, that it calls TD-SCDMA. Qualcomm made noises that all CDMA-type technologies developed in China naturally deserve to earn Qualcomm a royalty. The instruction was aimed at China's Datung, which had developed the TD-SCDMA technology with Siemens.

And Datung told Qualcomm to piss off.

The news was only slightly worse for the Europeans, who had banked on the vast Chinese market plumping for their commercially more attractive (i.e., there is more than one supplier) but technically less attractive (i.e. it doesn't work, yet) WCDMA option. Which caused a rare simultaneous cry of anguish from Espoo, Stockholm and San Diego. Something you don't hear very often.

But the cannier European manufacturers have not been slow to see the opportunity. Last week Philips, Datung and Siemens announced a partnership, "T3G", to bring the Sino-flavored 3G to market.

When we took soundings before Christmas, the consensus was that the Chinese flavor of 3G was but a negotiating ploy. Now it looks like they're deadly serious.

Back to Beijing

OK, why is any of this relevant to you, patient reader? Well, let's conduct a simple thought experiment.

Let's imagine that China, having pioneered a simple and cheap overlay for their 2G GSM networks had offered the same royalty-free technology back to Europe. And let's imagine that Europe had adopted it.

Of course this could never have happened. China has a peculiar and quite unique relationship to western capital that neither bombs nor patents can define. It isn't another Chile.

Western capital desperately wants to tap into this emerging market but must do so on China's terms - and this is a form of state owned capitalism quite unlike the Korean chaebols, or the German and Japanese models producer-partnerships that Harold Wilson tried to forge in Britain. This is a whole new ball game.

Microprocessor designers like to compare their work to moon landings - shooting at a target years into the future. So far, China's home-grown technology work has looked to occidental eyes as naïve and opportunistic: part larceny, part Rube Goldberg. I think this is very patronizing and gravely underestimates the Chinese intelligence. This a country with a great engineering tradition.

Now, China's development of TD-SCDMA isn't a successful moon landing, but it must count as a very near miss. TD-SCDMA could quite conceivably have been a global, royalty-free 3G standard if it had been ready three years earlier and the European manufacturers had trusted it, and been bold enough to tell Qualcomm and the US trade department negotiators to order their tanks to retreat from the lawn. A lot of "ifs", for sure.

But the point is, China could be a global partner in developing technological standards, rather than a receptacle for dumping goods. Some economists have long suggested that the curse of overproduction that bedevils Western economies will be cured by the vast, new Chinese market. Uh, that might exactly the wrong way to look at it.

China as the new Microsoft or Intel? Heck, that future is almost here. ®

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