Qualcomm's China plans back on track
(UPDATE: Recasts with analysis, details of phone deal)
By Matt Pottinger
BEIJING, Oct 16 (Reuters) - In a dramatic reversal, China Unicom said on Monday it would build networks using current generation CDMA technology, reviving the fortunes of U.S. firm Qualcomm Inc in the world's second largest wireless market.
The San Diego-based wireless technology firm has been trying for years to persuade China to build networks using its narrow-band CDMA (code division multiple access) standard.
The about-face by China's second largest mobile phone company, which in June ruled out using the standard, will also benefit foreign telecoms equipment makers like U.S.-based Lucent Technologies (NYSE:LU - news) and South Korea's Samsung Electronics .
Almost all China's 65 million mobile phone subscribers use the rival GSM (global system for mobile communications) standard promoted by European firms.
As concrete evidence of China Unicom's new commitment to CDMA, Chinese phone equipment maker ZTE Corporation and Qualcomm unveiled a CDMA prototype handset on Monday.
``We will definitely build narrow-band networks, definitely,'' Zhang Fan, head of mobile communications at China Unicom, told Reuters ahead of a news conference to unveil the handset.
NETWORKS ``NOT VERY SMALL''
China Unicom publicly abandoned plans for narrow-band CDMA in June before the initial public offering of its Hong Kong-listed wing China Unicom Ltd (NYSE:CHU - news).
That announcement helped crush Qualcomm's stock price.
Its shares traded at $69 15/16 at the end of last week, far off its all time high of almost $180 in January, even though Unicom held out the possibility of adopting future generations of Qualcomm's CDMA.
But Unicom, under pressure from domestic equipment makers that invested several hundred million dollars in the standard, began hinting at a change of heart in September.
Premier Zhu Rongji, who had pledged to the U.S. government that China would adopt CDMA in a concession to help Beijing's bid to join the World Trade Organisation, played a key role in pushing CDMA forward, an industry executive said.
Qualcomm chairman Irwin Jacobs met Zhu and China Unicom chairman Yang Xianzu in Beijing this month, and Zhang's announcement appeared to be the fruit of his high-level lobbying.
Zhang said Unicom would expand a handful of trial CDMA networks it is scheduled to acquire, and build in other cities, subject to central government approval.
``We have to expand to other places as well,'' he said. ``Without scale, it is difficult for mobile communications to flourish.''
``The networks won't be very small, but subscriber capacity has yet to be determined,'' he said.
Another Unicom official said Unicom, not its Hong Kong-listed subsidiary, would control the CDMA networks.
GSM is used far more widely around the globe than CDMA, making it an attractive option for customers since it allows them to roam from country to country using the same phone.
But CDMA allows phone companies to cram more calls and information across limited airwaves than GSM -- an advantage in a crowded market like China. CDMA also provides the foundation for future-generation services like high-speed Internet.
When it looked as though narrow-band CDMA was dead in China, Qualcomm shifted strategy from lobbying phone companies to courting telecoms equipment makers, including Shenzhen-based ZTE Corp .
It struck deals to lease its technology or provide chipsets to a dozen Chinese firms, encouraging them to design and manufacture CDMA goods.
Qualcomm sells CDMA chipsets to handset makers and earns royalites on CDMA handset and network equipment sales.
ZTE's new phone is the first CDMA handset in the world to contain a thumbnail-sized SIM card allowing users to switch to a new handset while retaining their old number, a crucial feature in China where mobile phones are often bought as fashion items.