Wireless wishes

The Korea pavilion usually causes a stir at the huge telecommunications expositions held every year around China. At the China PT/Wireless & Networks expo in Beijing and the ITU Telecom World 2006 in Hong Kong, the Koreans drew crowds with giveaways and pretty models.

Granted, they also had plenty of technology to show off to the crowds enticed into the booths.

While China has just announced 4G field tests, and continues to drag its heels on 3G licensing, Korea already lives in a 4G world. Its wireless carriers invested US$5.4 billion in high-speed downlink packet access (HSDPA) networks which shuttle data across the country at a world-beating four megabits per second.

Using the mobile WiMax standard, Korea's largest fixed-line carrier, KT, is rolling out an even faster wireless network throughout greater Seoul. SK Telecom and KTF, Korea's two largest mobile carriers, are offering a mobile WiMax service called WiBro (wireless broadband). Yet while Korea's LG and Samsung do well at the higher-priced end of China's handset sales, no amount of glamour has been enough to crack the market for wireless network equipment, the stuff mobile networks are built on.

Bit part players

Vendors from South Korea remain small players, explains Fang Meiqin, principal analyst at BDA China. According to BDA figures, Samsung is at number six, with a 5% market share, while Motorola and Lucent lead the pack. Even China's ZTE is ahead of Samsung in third place.

"It looked promising in 2002 when China Unicom rolled out nationwide Samsung CDMA in China," Fang said.

But China opted for European-led GSM networks rather than the CDMA Korea specializes in. Today China's sole CDMA network has 36 million subscribers, compared to two GSM networks, which together count 320 million subscribers, Fang explained.

Sales of CDMA equipment in China may have only been US$258 million in 2006 due to reduced investment from Unicom. That kind of revenue is small beans next to GSM equipment sales of around US$5.2 billion the same year.

Korea bet on CDMA early on because it believed late entrance into GSM development would put its national firms at a disadvantage against well-established European GSM companies.

Early research efforts and deployment in the 1990s made Samsung a strong player in global sales of infrastructure and terminals for CDMA, the preferred standard in the US. But so far the standard has only 10% of the world market, which is decent but not spectacular, according to Guo Fei, a telecoms analyst at Beijing-based IT consultancy Analysys.

Now Korea will be hoping that the next-generation wireless standards – WiMax and WiBro – will allow it to recreate its American CDMA success in China. Steps are already being taken to export the relevant network hardware into China – SK has been piloting a WiMax network in Wuhan – but so far nobody is biting.

"[WiMax] is less likely to get the spectrum frequency it needs," Guo said. "In China WiMax wanted a 2.5GHz frequency but that is not likely. It's not likely to be available [nationwide]; rather, just in hotspots."

Guo believes that WiBro, which has yet to be tested outside of Korea, isn't mature enough for a roll-out in China.

Local protectionism

Chinese reticence on WiMax and WiBro may have something to do with the desire to see domestic firms expand into the international market. Whereas Korea focused its investment on global standards in the 3G race, China has been promoting its own standard, TD-SCDMA.

"Korea had a different priority on 3G," Guo explained. "Now China will grow TD-SCDMA at all costs and will be prepared to wait a few years if necessary for maturity. The homegrown standard will be handed market share over other standards."

Certainly Chinese equipment vendors like ZTE and Huawei are making more wireless network equipment than their Korean counterparts.

From 2000 to 2004, China reported revenue growth of 28% in ICT manufacturing, compared to 13% in Korea, according to data collected by BDA.

However, Korea's wireless network equipment is more sophisticated. Value-added IT and telecommunications production contributed 12.8% to Korea's GDP growth compared to China's 4.1% in the same year, according to BDA.

"[Chinese] vendors have a price advantage, but generally foreigners bring added value," Fang said.

China's TD-SCMA will be rolled out with 3G licenses precisely to seize market share from foreign vendors like Samsung. Local firms like Datang Telecom, which has been involved in TD-SCDMA development from the start, will benefit from government support; local technologies will be force-procured by government agencies and state-owned enterprises.

But the game is far from over for Korean companies on both the CDMA and 4G fronts. First of all, CDMA could well make a resurgence in the complex restructuring expected to come China's 3G licenses are issued.

"If China Telecom acquires a CDMA network from China Unicom, that's good news for CDMA equipment vendors," Fang said. "China Telecom doesn't have a mobile network, so there will be much more aggressive investment."

The outlook for Korean equipment vendors is also good if TD-SCMA does not gain traction. Vast numbers of China's rural poor still don't own a mobile phone and urbanites increasingly want video-calls and seamless internet access on their high-end handsets.

Without TD-SCMA, China might have to take a closer look at Korea's high-speed alternatives in the end.

"WiMax is interesting to China Mobile if TD-SCMA doesn't work out," Fang said. "Samsung will have the WiMax market largely to itself."