Thursday, January 22, 2009

How to Compete and Win with Unproven Technology

Last year when the shakeup in China's telecom sector was announced, the general consensus was that China Mobile got the short end of the stick as it was being forced to implement China's homegrown alphabet soup of a 3G mobile standard: TD-SCDMA.

Until that time, China Mobile, whose shares are listed in New York, was by far the dominant mobile player in China. As part of the shakeup, China Mobile was forced to buy China Tietong, a smaller fixed-line player, while China Unicom and Netcom were allowed to merge. The idea seemed pretty good for the industry as a whole because China ended up with three major telecom players, each with a slice of both mobile and fixed-line service.

However, many observers felt that the merged Unicom/Netcom (Unicom) and China Telecom (Telecom) both ended up in superior positions in terms of 3G technology because they would be getting licenses for 3G standards that were already in use outside of China. China Mobile's TD-SCDMA was brand-new, unproven technology that would have trouble catching on when competing with the WCDMA or CDMA2000 standards expected to be used by Unicom and Telecom. Or so everyone thought.

The Ministry of Industry and Information Technology announced yesterday that new policies would support TD-SCDMA. More bandwidth was assigned to China Mobile than to Unicom or Telecom for use with 3G services. According to an article in today's SCMP:

The measures announced yesterday fell into six areas - financial aid, project support, network construction, product research, commercialisation, and industry development, the ministry said.

The government will add TD-SCDMA to the official procurement list and give developers of the technology priority in tapping its existing funds. Another key measure is the possibility of discounts for telephone calls made through the TD-SCDMA network.

"This is an unexpected outcome as the market has previously anticipated [the ministry] might raise China Mobile's interconnection tariff in order to support the balanced growth of the industry," UOB Kay Hian analyst Victor Yip wrote in a research note yesterday.

"Now the announcement seems to indicate the [ministry] is using an asymmetric policy to help China Mobile on the development of TD-SCDMA network."

How to compete with unproven technology? It's actually quite easy when the deck gets stacked in your favor.

This actually makes a lot of sense from China's perspective because with the homegrown TD-SCDMA, no royalties flow outside of China to foreign patent-holders. However, it does seem to run contrary to the whole idea of creating a more level playing field as was envisioned with the shakeup in the first place.

I just hope my GSM phone still works when I get there in a few months.

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