iPhlop!

One of the most interesting things about Apple’s deal to sell the iPhone in China is that it spotlights the shortcomings of China’s government in promoting a home-grown mobile-phone technology.

Apple, of course, likes to do its iPhone deals with operators that are market leaders (AT&T in the US, Telefónica in Spain and the UK, Deutsche Telekom in Germany and France Telecom in France). In China, the obvious choice would have been China Mobile – not only the market leader by far but also the biggest mobile-phone company in the world by customers.

China Mobile, however, is stuck with a unusual 3G technology called TD-SCDMA. While most emerging markets have been happy to run with the W-CDMA and EV-DO standards developed in the US and Europe, Chinese authorities preferred to come up with their own 3G standard. The hope was this would provide a boost to Chinese tech firms, and prevent the likes of Ericsson, Nokia and Motorola from taking over. It might also reduce the royalty fees that makers of 3G equipment typically pay to Qualcomm, a US chip company behind much of the technology used in the W-CDMA and EV-DO standards.

But the outcome has been a troubling one for China’s leaders. For a start, TD-SCDMA got off to a bad start, as any commercially unproven technology is likely to do, with customers complaining about service quality and a number of technical glitches.

What’s more, Huawei and ZTE, China’s two biggest hardware companies, have become international firms in their own right, buoyed by sales of EV-DO and W-CDMA equipment to operators around the world. At the same time, western rivals have made tentative investments in TD-SCDMA, preventing Huawei and ZTE from monopolising that space.

Ultimately, though, TD-SCDMA does not have the same degree of industry support as the two older 3G technologies, and that leaves China Mobile at a disadvantage. Its network equipment is likely to be more expensive, for one thing. And most of the world’s cutting-edge handsets have not been customised to work on TD-SCDMA networks. The iPhone is no exception.

For China Mobile, this would not matter as much if it weren’t for the fact that Chinese authorities – instinctively protectionist but worried about the consequences of protectionism – allowed China’s two smaller mobile-phone operators to compete using the international 3G standards. Telecom got an EV-DO licence, while Unicom was permitted to roll out W-CDMA.

The upshot is that Apple did its iPhone deal with China Unicom, giving the operator a huge advantage over its bigger rival in the nascent 3G market. Meanwhile, China Mobile is trying to persuade handset makers outside China to come up with more attractive TD-SCDMA handsets, while struggling to convince customers its 3G service is just as good as its rivals’.

All things considered, this is one government scheme that looks to have badly backfired.

No Great Leap Forward – Take 2

Since GTF wrote about the complete lack of 3G phones in China in April, The Economist has weighed in on the subject. It reports that Jiang Xiayou, the executive vice-president of the Beijing Organising Committee, may have to go back to the International Olympic Committe to discuss its pledge to have a 3G mobile-phone network available in time for the games.

As we explained in April, the main reason for the delay is the goverment’s insistence on developing its own 3G standard – TD-SCDMA – which is not yet ready.

The problem has also been compounded by the pressing need to reorganise the domestic mobile phone sector, which has been heavily dominated by China Mobile at the expense of the other players. In this regard, the government’s hands are tied as all four of the major mobile players in China have gone public on the Hong Kong stock exchange and are now answerable to their shareholders.

We can’t help but agree with the Economist’s conclusion: Foreign investors looking at China often swoon at the country’s potential but are driven mad by its conflicting and heavy-handed policies. The state of the country’s telecoms industry, however, suggests that the Chinese government faces exactly the same problem.

What goes up doesn’t come down

The China Daily today tells us of the 99th launch of China’s Long March rocket series. Congratulations are due to China’s rocket scientists – we’ve come a long way from the days when it seemed like one in every two launches ended up making an unscheduled early re-entry. (On my own first stay in China in 1995 an acquaintance from Boeing told of an embarrassing incident in which a satellite launch ended up exploding shortly after take off, raining pieces on the VIPs assembled to view it, and tragically killing several farmers working in nearby fields).

The current launch involved two satellites – one to be used for scientific research, land surveying, crop yield estimation and disaster forecasting, and one that will be used for research into micro-electronics. All doubtless good practice for the next manned Chinese space mission, due in September 2008.

Want to buy a phone?

Last week Nokia announced a deal with China Postel under which the Chinese firm would spend around US$2.5bn acquiring its phones for distribution around China – and that’s just this year. In case you’re wondering how many phones that gets you, reports suggest it’s around 20m (over 100m units were sold in China in 2006). Engaging China  suggests that the move is a sign that China’s main distributors are moving towards stocking a more limited range of better-known brands as the market matures – Postel has been China’s leading distributor for eight years, with about 30% of the market last year. 

On reading the report I couldn’t help wondering whether we’re seeing mobiles becoming a low-margin high-volume commodity in China. The failure to move forwards on 3G must be limiting opportunities for selling high-end phones with more value-added features and higher margins. That could have worrying implications for the mobile manufacturers - China is Nokia’s biggest single market, accounting for 12% of net sales last year.

No Great Leap Forward for 3G in China

Much of the buzz in the mobile industry in China surrounds the arrival of the long-delayed local standard TD-SCDMA, and how it will affect the development of 3G phones in what’s emerging as the world’s biggest handset market. The latest talk from Ericsson (courtesy of the China Alpha site) suggests that 3G licenses are unlikely to be handed out before the end of the year, as some major TD-SCDMA pilot projects need to run their course. This would put the government on a tight – but not unachievable – deadline to have 3G up and running by the 2008 Olympics as it has promised. 

This may be missing the wider point, however.
China’s regulators are still in a hopeless mess over the advance of telecommunications and convergence between phones and other broadcast media. Industry insiders in Beijing recently argued that co-operation between the Ministry of Information Industries (currently regulator-in-chief of the telecoms sector, but with a focus on hardware) and the State Administration of Radio, Film and Television (in charge of broadcast material) really needs to pick up if people are to stand any chance of being able to stream content onto their phones. As of yet there’s no sign of that. 

Indeed, one recent report in a paper run by the state-owned Xinhua news agency (translated at Danwei ) noted that at least 14 important government agencies had responsibility for varying aspects of online media, even before we start talking about putting that content onto phones. A good number of those agencies are responsible for maintaining the Great Firewall and keeping an eye on suspect internet publishing. The Chinese government’s paranoia is likely to ensure that the country’s mobile industry enters its third generation still hobbled by red tape.

Dell’s China caper

Since writing about China YouTV, we’ve heard that Dell is now aiming to flex its muscles in China with a super-cheap PC aimed at 90% of population who don’t already own one. The price, at $339, is nearly 70% cheaper than the lowest price model on Dell’s China web site. 

But what can the company reasonably offer at that price? If it’s just a box for pulling in email and checking the news, fine. But computers at this price will not help the country build a PC-educated workforce. No one can learn MS Office (like it or not, the standard for business productivity software) on Ubuntu Linux or other freeware.

Affordability vs national-building necessity – in other words, what you can get vs what you need – is a tough call for those who want to see a more equal pattern of wealth distribution around the world. Dell, of course, just wants to sell computers. But unless the company has developed a cheap computer that’s a real PC, this launch sounds an awful lot like a gimmick. 

Mining 2.0?

The lure of the Chinese market continues to dazzle. Add the internet and you’ve got a goldmine, right? That’s the conclusion of Admax Resources, a Nasdaq listed (AMXU.OB – News),  mining company in British Columbia. It has decided to change its name to China YouTV Corp.

Thanks to a story from China Tech News, we’ve learned that Admax plans to launch a business aimed at  the fast-growing video sharing web site market in China. So, while it continues looking for something valuable beneath the ground in Canada, it’s hedging its bets by tapping the natural resources of the growing numbers of net users in China.

In its press release the company explains that the 19th report of the CNNIC (China Internet Information Center) says there are currently over 137m netizens in China, accounting for 10.5% of the population, ranking second only to the US. Big numbers, true, but hopefully Admax has a Plan B if this diversification fails to hit the mother lode.