Special Analysis: China's Delayed 3G - Short Term Delay or Shelved Indefinitely?

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China has delayed licencing 3G for several years. And COMMIT Incorporated, a Chinese TD-SCDMA chip manufacturer, announced plans to stop business operations on May 6, 2008. Is it a signal that China's 3G has a bleak prospect? Through the analysis of the death of COMMIT, we present an in depth view of China's TD-SCDMA industry.

China's Delayed 3G - Short Term Delay or Shelved Indefinitely?

COMMIT Incorporated, a Chinese TD-SCDMA chip manufacturer, has announced plans to stop business operations due to disrupted capital flow. To certain extend, this reflects the hard conditions facing China's TD-SCDMA industry.

COMMIT was established in February, 2002, with the backing of 17 respected enterprises including China PUTIAN, DaTang Telecom Technology, Texas Instruments (China), Nokia (China) Investment and LG Electronics, Inc. It is one of the five major companies performing research and development in TD-SCDMA chips. Among the investing group, 9 are domestic companies and 8 are foreign, while 68.76% of the total capital is owned by the foreign firms with the remaining 31.24% held by the Chinese funds. Texas Instruments and Nokia accounted for 13.5% of the total capital respectively.

Insiders say that since last year, major stockholders have had conflicts over whether to continue investing in COMMIT. Nokia approved further investment, Texas Instruments refused, and China PUTIAN and DaTang failed to engage in time, so reinvesting in COMMIT has stopped.

Although differences between stockholders might account for this company's difficult situation, it also demonstrates the hard conditions facing China's TD-SCDMA industry.

With the domestic information and communication industry's accumulation of technologies and talents for many years, China presented its first proposal on the TD-SCDMA standard for the 3G communications to the ITU in 1999. The standard proposed was adopted to become one of the three mainstream 3G standards (with the other two: WCDMA proposed by Europe and the CDMA2000 by USA) because it uses many advanced technologies such as smart antenna, software radio and joint detection thus having many technical advantages especially the high usage of spectrum. As to TD-SCDMA, Zhao Houlin, Director of the International Telecommunications Union's Telecommunication Standardization Bureau (ITU/TSB), noted that it was China's first successful attempt in independently creating an international standard for wireless communications. It can be said that it is a breakthrough in China's communications history.

Experts point out that once China's 3G standard with independent intellectual property rights is used for commercial purposes, domestic enterprises will benefit from it because they would not have to pay patent royalties incessantly to communications companies holding telecommunications standards as they did during the 2G era; or, the patent royalties claimed by such standard holders would be greatly decreased. What is more important is that TD-SCDMA will offer opportunities for domestic enterprises to take part in the development of standards, from semiconductors to chip sets, then to terminal manufacturers and sales channels along the industrial chain, thus driving China's mobile telecommunications industry to realize its ambitious transformation from being a follower to being an innovator in the area of technical development.

Since 2002, many manufacturers in China and other countries have set up corporations to march into the TD-SCDMA market. But it has not been until April 1, 2008 that China Mobile began testing its 3G standard for commercial use. And when it will enter the market is anybody's guess. The long delay of 3G service has forced R&D companies to invest huge amounts of money. Li Jinliang, a Chinese expert in telecommunications, said that manufacturers specialized in TD are all in peril, struggling with big investment but small return. Without capital or income from other sources, these companies face a bleak future. It seems that China's TD industry is in distress.

However, Yang Hua, Secretary General of TD-SCDMA Industry Alliance, said that the death of COMMIT is only an isolated case and TD industry still has a bright prospect because the state has a clear determination to promote TD industry and China Mobile has began testing its 3G standard for commercial use. According to him, the development of TD industry is in an orderly and steady process and the problem of inadequate follow-up funds of COMMIT is not because of its shareholders' lack of confidence in the development of TD industry, but because of their different views on the degree of attractiveness of the China's TD industry.

Now, two of COMMIT's major investors, TI and Nokia, have stepped in to settle the unpaid wages and expenses to its employees. This puts a satisfactory ending to the company. Meanwhile, the other four remaining TD players play on, looking forwards to a lucrative Chinese 3G market.

About the Author

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China's engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.