China’s Lame Duck 3G

When it comes to choosing a 3G phone, Chinese customers have more options than those in other parts of world. But they’re not just choosing between a Blackberry or an iPhone; they also have to navigate China’s puzzling system of 3G networks.

There are two principal types of 3G networks around the world; the American mode (or WCDMA) and the European mode (or CMDA 2000). Most of the world’s 4.6 billion mobile phone owners use one of these two networks, but the 1.4 billion Chinese users have another option: the TD-SCDMA, or  the Chinese mode.

Why is China different? Why spend billions of dollars to design a third network when the other two are well established all over the world? There are myriad political, economic and technological reasons, but the bottom line is that China wants to control its own network and avoid paying billions of dollars in patent fees.

Like many other home-grown technologies, China’s 3G network is heavily subsidized by the government. Futhermore, the government has asked China Mobile, China’s biggest mobile carrier, to use this network.

In order to create a relatively competitive environment, the Chinese government issued licenses to two less prominent carriers. The first, China Unicon, uses the U.S. mode, while the second, China Telecom, uses the European mode.

The monthly fees for any of these networks are outrageously expensive for the average Chinese mobile phone user. For example, China Telecom’s cheapest plan costs 150 yuan (about $22 U.S.). This may seem cheap to American readers, but that represents about one tenth of the monthly salary of a newly graduated Chinese student.

Since the U.S. and European modes are more mature systems, most of the world’s biggest mobile phone manufacturers — like Nokia, Motorola and Apple — make handsets for these networks. Since the Chinese mode has only recently graduated from its beta version, most of these brands don’t have the time or inclination to roll out new product lines. As a result, China Mobile must limit itself  to domestically manufactured handsets. But rich customers, who make up a substantial portion of mobile phone purchasers, want the latest technology, and therefore buy phones that use the American and European networks.

As a result, China Mobile has been forced to focus its marketing on its 1G and 2G models. It has also been pushing its netbooks, which use the 3G network. Netbooks are still a relatively new technology in China, which gives China Mobile the opportunity to compete with the big boys on an even playing field. Nevertheless, it is estimated that China will have 740 million mobile subscribers by the year 2010. This projection indicates the future of 3G is all about mobile phones, which leaves China Mobile at a significant disadvantage.

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