China Unveils Next Phase of CDMA Deployment

On the eve of President Jiang Zemin’s visit to the United States, U.S. and Chinese officials on Monday announced renewed contracts to North American telecommunications equipment providers valued in the “hundreds of millions” of dollars.

Ericcson Wireless Communications , Lucent Technologies , Nortel Networks and Motorola each signed contracts with China United Telecommunications Corp., the state-owned telecom operator, to provide code division multiple access (CDMA) 2000 1x equipment for the next phase of its wireless infrastructure overhaul.

The announcement was made in New York City by Commerce Secretary Donald Evans and Chinese State Development Planning Commission Minister Zeng Peiyan as well as Consul General Huang Hui Kang, and U.S. Department of Energy Under Secretary Robert Card. The deal comes days before Jiang sits down with U.S. President George W. Bush for the third time since last October.

“These signings are a tangible example of the vital trade relationship between the United States and China,” Evans said in his prepared remarks.

The migration toward CDMA is seen by many as a concession for China’s entry into the World Trade Organization (WTO) a few years back. Prior to declaring its commitment for the Qualcomm-developed CDMA technology, China’s wireless infrastructure was built around the GSM standard.

According to Reuters, Motorola’s portion of the deal is valued at
(US)$446 million while Nortel’s portion was described only as “hundreds of millions.”

As was the case previously, China Unicom Ltd. , a
subsidiary of China United Telecom, will oversee the equipment upgrade. Last
year, China Unicom complete the first phase of its CDMA network valued at
roughly $1.5 billion and began soliciting bids from equipment vendors for
the second phase, the official Xinhua news agency reported.

The news was a boon for the telecom equipment makers, which have been
severely hurt by the telecom meltdown in North America and Europe. But, at
least one analyst raised concern about the dependence of the Chinese
government on future growth.

The Qualcomm CDMA train continues to be driven by strong subscriber
numbers from China Unicom,” noted Brian Modoff, analyst at Deutsche Bank.
“The issue, in our view, is that as long as the train conductor continues to
give out heavily subsidized tickets and the train does not run out of track,
everything is going to appear to be running fine. At some point, however,
reality is going to emerge, the conductor is going to start charging for
tickets, and the passengers may not be as compelled to continue riding the
train.”

“It is difficult for us to predict when our analogy will pan out, but we
do not believe that the continued pattern of overly aggressive subsidies can
continue forever,” Modoff said.

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