When China United Telecommunications Corp. (China Unicom) announced the commercial launch of its nationwide CDMA (Code Division Multiple Access) service in January, Qualcomm Corp. -- the San Diego company that developed CDMA technology and lobbied for the creation of a national CDMA network in China -- welcomed the news.
"This launch represents a major advance in Chinese telecommunications and positions China Unicom at the forefront of wireless communications," Qualcomm said in a statement issued on January 8.
Three months on, China Unicom's CDMA network is hardly at the forefront of China's mobile telecommunication industry. Instead, the company, which is based in Beijing, has seen CDMA subscriber growth lag behind its other mobile network, which is based on GSM (Global System for Mobile Communications), a rival mobile-phone technology that is not compatible with CDMA.
Even though China Unicom's CDMA network was launched in January of this year, the roots of the network can be traced back to a CDMA network operated by a company linked to the Chinese military, Great Wall Telecom. That network, which formed the nucleus of China Unicom's CDMA service, was acquired by China Unicom in January 2001 as part of a Chinese government initiative to divest the military of its commercial operations.
"I was not impressed by the proposal to migrate to the new (China Unicom CDMA) service," said Pete Fang, an Internet executive in Beijing who was one of the first users of the Great Wall Telecom CDMA trial network. "The Great Wall network costs 0.2 renminbi (US$0.02) per minute. If I switch to the new network it becomes 0.4 renminbi (and) there are not enough handsets available today to choose (from) and most are more expensive than their GSM counterparts."
Rather than sign on with China Unicom's CDMA service, Fang made the switch to the GSM service offered by dominant mobile service provider China Mobile Communication Corp., which also charges subscribers 0.4 renminbi per minute. "I switched to GSM because Great Wall's CDMA coverage was poor and roaming was only available in four cities -- Beijing, Shanghai, Guangzhou and Xi'an -- and no international roaming at all," he said, adding that the service also offered no support for SMS (Short Message Service) or data access.
These days, China Unicom's CDMA network is far more extensive. Built over a period of six months at a cost of 24 billion renminbi -- or US$2.9 billion at current exchange rates -- the network covers 330 cities across all 31 of China's provinces and autonomous regions and has the capacity to handle nearly 15.2 million subscribers. The service also offers roaming in South Korea and Hong Kong and now supports SMS.
And this is just the beginning of what China Unicom has planned for its CDMA network. In a presentation shown to investors in December by China Unicom's listed arm in Hong Kong, China Unicom Corp. Ltd., the company called CDMA a "major opportunity for (China) Unicom." The bet on CDMA technology would help China Unicom attract 35 percent of China's mobile subscribers by 2005, up from the company's 2001 market share of 28.5 percent, the company said.
If China Unicom reaches this target, that would more than triple the number of mobile subscribers the company has to nearly 102 million, based on forecasts by China's Ministry of Information Industry that the company cited. So far, however, things are off to a slow start.
On April 8, the total number of CDMA subscribers at China Unicom was 800,000, according to figures released by the company. That figure includes 440,000 subscribers transferred from the original Great Wall Telecom CDMA network, leaving a total of just 360,000 new CDMA subscribers since the beginning of 2002.
By comparison, China Unicom said its GSM service added 2 million new subscribers each month during the first quarter.
"(The CDMA service subscription level) has been disappointing," said Ted Dean, managing director at research firm BDA China Ltd.
Part of the reason for the slow start is that China Unicom has sought to launch a 2G (second-generation) mobile service at a time when most operators are gearing up to roll out 2.5G (advanced second-generation) or even 3G (third-generation) services. And then there are the challenges associated with launching a new technology in a market where GSM services are already well established.
"It's hard to launch a brand new network from scratch," said Dean. "Even the best-managed telecom company in the world would have problems doing that and the fact is (China) Unicom is not the best-managed telecom company."
China Unicom officials acknowledged that subscriber growth has been affected by a shortage of CDMA handsets and the relatively high prices of available handsets.
"The growth rate in the first three months is slower than expected due to insufficient handset supply, high price and limited models in the market," said Sophia Tso, a spokeswoman for China Unicom in Hong Kong. "However, our target for the whole year of subscriber growth remains unchanged."
China Unicom expects to have a total of 7 million CDMA subscribers by the end of 2002, Tso said. However, that figure may be unreachable, according to Dean, who estimates that China Unicom will attract between 3 million to 4 million CDMA subscribers by the end of this year.
Despite the slow start to its CDMA service, China Unicom is moving ahead with a push to roll out a more advanced CDMA service, based on CDMA1x technology, that will have a capacity of up to 15 million subscribers by the end of 2002 and will permit faster download speeds for data and Internet access.
"Our nationwide CDMA1X network will be completed around the end of this year and China Unicom will start to roll out various new cellular data services successively," Tso said.
With most Chinese users opting for GSM rather than CDMA services, perhaps China Unicom should have waited to launch the network with CDMA1x technology.
"I think they made a mistake, they should have waited for the CDMA1x network to be ready and launch the thing with 2.5G data access," Fang said. "Now many users realize they have to upgrade their handset again for new (CDMA)1x features."
"If I were to go CDMA, I'd wait till CDMA1x is in place so I can choose a handset that supports all the new features and benefits (rather than) buying something right now and then have to upgrade within a year," he said.