Tuesday, March 28, 2006

Recently I wrote in the China Herald (my weblog) about the bloody battle looming between telecom giants now that China is spending dozens of billions of US dollars to roll out its 3G third-generation mobile phone. (More on this technology, see the 3G Portal). I described how China is giving the lead role to the Chinese standard TD-SCDMA -- leaving the European and U.S. technology far behind in that booming market.

Some smart foreign companies like Siemens and Nortel joined China half a decade ago in developing that standard for the third-generation mobile phones. Now that the big rollout is at hand, the foreign telecom companies which developed the European and American standard should take a good look at themselves. Barring a massive technical disaster, foreign telecoms in Chinathat stick with a western standard will have one choice: Abandon ship!

It's very unlikely that China would adopt more than one standard. At this stage, China seems so busy with rolling out the system in its own country that expanding into other countries might not be on its agenda. Of course, that might change in a few years. Also, the expected cost-effectiveness of the Chinese solution might offer serious competition to the other standards.

In China itself, simply managing a domestic market of nearly 400 million mobile phone users (so far) might be enough of a challenge.

Some telecom providers might hold out hope for current resistance to TD-SCDMA. For example, China Mobile would rather upgrade its current GSM-network (based on European standards) rather than invest in a completely new network.

Such hope is misplaced.

If anything can be learned from the past 15 years of Chinese telecommunication, it is that -- like elsewhere in the world -- existing telecom companies are a barrier to change. Had it been up to Chinese telecoms, China would have no cheap mobile phones, hardly any Internet and certainly no large-scale broadband connections.

Two factors steer change in China:

• Top-down government policies: In particular, former prime minister Zhu Rongji was instrumental in splitting up the arch-conservative China Telecom.
• An enthusiastic consumer base: When Chinese consumers discover what they can get, they wipe away struggling telecom companies.

Combine those two factors, and I predict that China will see its second internet revolution in the next five years -- with 33 million users per year getting online beyond the current 115 million Internet users

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