Good fortune in China

Telecom vendors suffering from slow carrier spending domestically have received some big boosts from China in recent months.

China United Telecommunications, an arm of China Unicom that is deploying a nationwide CDMA system, granted $1.5 billion in CDMA equipment contracts to various vendors last week, ending years of doubt regarding CDMA's presence in China.

Motorola, Lucent Technologies, Nortel Networks and Ericsson were among the vendors earning contracts. Motorola said it won the largest portion in terms of dollar amount, gaining $407 million in business and covering 11 provinces with 4 million lines of network capacity. Lucent also claimed to win the largest contract but declined to give a dollar amount, winning 10 provinces with network coverage of 4.2 million customers.

Nortel's contract is valued at $275 million, while Ericsson won business valued at $200 million. Samsung, Alcatel's joint venture Shanghai Bell and various Chinese vendors also won contracts. China Unicom will build out its CDMA network nationwide by the fourth quarter.

“We've been working on this for five years,” said Rose Miller, Lucent's wireless business development director for China.

After years of heavy negotiations and political maneuverings that included Qualcomm signing a CDMA royalty deal with China's vendors, the Chinese gave Unicom permission to use the technology in early 2000. What followed was another series of delays as the CDMA card was often played in U.S.-Sino relations.

“There's no doubt we've all been champing at the bit to get something going,” said David Murashige, vice president of strategic marketing for wireless Internet solutions for Nortel.

And CDMA's uncertainty in China was a sticky issue when Unicom went public last year. As a result, Unicom created a new division, China United, to operate the CDMA network and remove the confusion from its IPO. Now China, which recently surpassed 100 million subscribers, will have three nationwide competitors — GSM operator China Mobile; China Unicom operating a GSM network; and China Unicom's CDMA subsidiary.

Carriers in surrounding countries such as Taiwan have hedged their CDMA bets in light of Unicom's on-again, off-again plans but may reconsider the technology after Unicom's contract awards.

“We remain positive about further CDMA deployments in adjacent countries,” Murashige said.

The Asian market has been a source of growth for many vendors suffering from a slowing economy in the U.S. Motorola has signed wireless infrastructure contracts with Chinese vendors totaling $750 million since April 25, said John Cipolla, vice president and general manager of the CDMA systems division for Motorola. Cisco last week signed a contract to deploy 500 routers under a $100-million contract with ChinaNet, an arm of China Telecom.

“Both the Internet and mobile communications are hot areas in China that will give vendors a lot of hope,” said Hui Pan, chief economist with Information Gatekeepers.

Pan says Unicom's recent decision to invest in second-generation technology raises the question of how quickly Chinese operators will pursue third-generation networks.

“With the new CDMA network, that will take investment dollars away from deploying 3G,” he said. “Carriers will have to put more resources into building out the second generation. That's good news for all equipment vendors.”