TD-SCDMA = Based 3 6 Mobile Business Value Proposition and Alliance

Wei yuan', Mingzhi Liz

School of Economics and Management, Tsinghua University, Beijing, 100084 China 1yuanw@em.tsinghua.du.cn,21imzh@em.tsinghua.edu.cn
Abstmct-. TD-SCDMA, which was developed and promoted by China, is one of the third-generation (3G) mobile telec0"unicati0ns t ion standards, together with CDMAuN)o and WCDMA. Building competitive advantage based on the TD-SCDMA standard i believed t have the s o potential of making China move up the value chain in its
a

based value chain: joint efforts from f r s at different im layers, industry associations and government agencies will be critical for the realization of the business value.

I. BACKGROUND OF TD-SCDMA I
DEVELOPMENT In 1997, the ITU called for proposals for IMT-2000 standards. In the same year, Datang's SCDMA system - a wireless access technology - passed the state-level test and the former Ministry of Post and Telecommunications 0 decided to propose the Chinese 3G standard on the basis of SCDMA. In May 1998, a group of engineers began to draft the proposal of TD-SCDMA, which was later submitted to the I U ' . T[]
TABLE I
TIMELINEOF TD-SCDMA
~~

mobile telecommunication industry. This paper analyzes the dements of the evolving mobile business value chain and emphasizes the importance of building alliance among all the industry players, standard setting organizations and

government agencies.
Keywords: TDSCDMA; Value chain; Nodes; Alliance

I. INTRODUCTION
3G has dramatically improved the capability of mobile wireless transmission. The once simplex mobile communication industry falls into complicated situation with many new markets emerging and new players entering the markets. It is important to clearly understand the structure of the industry and the elements of the evolving value chain, especially the one based on the TD-SCDMA standards, since it is a new standard on which a whole new value chain is to be built. In the first section of the paper we describe the background of TD-SCDMA development. It depicts the hstory of TD-SCDMA, from being researched and developed to tests of the system. We can learn that TD-SCDMA marks a milestone for the China mobile communication industry. In the next section, this paper analyzes the structure of the value proposition of TD-SCDMA. In the stage of 2G being dominant in the m r e , when voice communication akt is the main service of mobile communication industry, there are three nodes on the value chain. Since 3G enables data service, the traditional value chain evolves and new markets emerge and new players enter the markets. in the last section of the paper, we compare TD-SCDMA with the other two standards--WCDMA and CDMA2000, f o which we find out the technical advantages of rm TD-SCDMA. However, there are still some factors that may put TD-SCDMA in an inferior position. Then we bring forward some critical problems that TD-SCDMA has to overcome. Lastly, we propose some solutions to the problems from the perspective of building the TD-SCDMA
This research has been funded by the N t o a N t r l Science ainl aua Foundation of China (Project Number 70231010 and 70321001).

_______

TIME
at

EVENTthe World Radio Conference (WRC) of the ITU, TD-SCDMA was accepted as one of the

May, 2000

three 3G transmission standards.

Dec 12', 2000

Mar l@, 2001
Nov. 2001

TD-SCDMA technology form was initiated.

TD-SCDMA standard was accepted by 3GPP(Third Generation Partnership Project) and was included in 3GPP's 4th Release. The govemment of China and Germany agreed to advance 29 cooperative projects including

Feb. 2002 May, 2002

Oct 23d, 2002

TD-SCDMA. Intertest-net succeed.

TD-SCDMA passed the fmt phase test of

MTnet.
China's Minishy of Information Technology publicized the 479' document for the frequency allocation for TD-SCDMA, tndustry Alliance of TD-SCDMAinitiated. Siemens Mobile and Huawei invested in a joint venture to develop the technology and product of TD-SCDMA TZle lndustry M i m e of TD-SCDMAhad 14 members. Global GSM Association and TD-SCDMA Alliance affiied to cooperation. The Industry Alliance of TD-SCDMA had 21 members.

Oct 3@, 2002

Aug, 2003

Dec. 2003

Jun. 2004
Apr, 2M15

On 5 November 1999, TD-SCDMA, together with SC-TDMA (UMC-136), MC-TDMA (EP-DECT), MC-CDMA (CDMA2000), DS-CDMA (WCDMA), W ~ S accepted a i radio interface standards by the ITU-R. In May 2000, at the World Radio Conference (WRC) of the ITU, TD-SCDMA was accepted as one of the three 3G transmission standards, together with CDMA2000 and

- 1388 0-7803-897 1-9105/$20.00 @2005IEEE

W-CDMA (Wideband CDMA). On 16 March 2001, TD-SCDMA made another breakthrough: at the 11th plenary session of 3GPP (Third Generation Partnership Project), all technical schemes of TD-SCDMA standard were accepted by 3GPP and were included in 3GPPs 4 h t Release[. This indicates that TD-SCDMA has not only been accepted by the ITU, but also by an industry alliance of operators and vendors13]. TD-SCDMA marks a milestone for the Chinese telecommunications industry, as it is the very first telecommunication standard proposed by China to be internationally accepted. As GSM and CDMA have dominated the 2G market, Chinese vendors have to pay tremendously high patent fees to foreign intellectual property rights owners. According to some recent statistics, such payments reached over 10 billion Yuan (US$1.21 billion) by the middle of 2ooO[41.Apparently, all this cost can be avoided because of TD-SCDMA. The potential and indirect benefit f o TD-SCDMA can be predicted too. rm

FII. THE VALUE CHAIN OF TD-SCDMA In the forepart of 2G period, voice communication is the
.

main service of mobile communication industq in China. There are three nodes on the value chain: equipment and software manufacturers, network operators and handset manufacturers (see Fig.1). h addition to setting up joint ventures and importing equipment, the Chinese government has provided favorable support to domestic manufacturers. In the mid 1990s, several domestic manufacturers were well established, including Julong, Datang, Zhongxing (ZTE) and Huawei. The dominant operators in China are China Mobile and China Unicom, the former is operating GSM network and the latter is operating both CDMA and GSM networks. Most of the terminal handset manufacturers set partnership w t domestic manufactures, such as ih Motorola with Huawei, Ericsson with Julong. The relationship between the former two nodes is dso always very tight. The network operators usually have close cooperation with several equipment producers.

data service most in demand is e-maiI[51.Howeverthe real growth of mobile data services actually lies in the short message service (SMS). There are two reasons: on one side, SMS has several advantages, such as convenience and being economical; one the other side, the transmit rate of mobile wireless is too much lower than that of Internet which customers have got used to, so the new data services cant be well developed. As TD-SCDMA significantly improves the rate of data transmission, it is possible to offer both data and voice services. M n data services are available, such as Mobile ay IntranetWxtranet, Multimedia Messaging Service, Mobile Internet and location based services. Therefore, new markets emerge and new players enter the markets. Some provide network connectivity, some provide middleware and others provide contents that will be transferred in the mobile network. The players m the same nc#fr niay provide differ& scrvicc. For instance, some players provide content for m-bank; others provide information for m-commerce[61. Since new nodes emerge in the network and the same node can be divided into different types of operation, the traditional value chain evolves. There are five nodes in the evolving value chain: application and content provider, navigation&middleware and connectivity, software and equipment manufacture, network operator, customer (see Fig.2).

Applications IIocluding.conent sumliers) Navigation&middlewave&

Connectivim

Software and equipment

manufactures Network operators

I
Equipment and software manufacture Network operators Handsets manufacturers J I
Fig.1: the traditional value chain of mobile wireless

Handsets or user interface

Fig.2: the evolving value chain of mobile wireless

With the technical improvement, some data service emerged with the applications of GPRS and WAF, such as Monternet Program and E-mail service. According to a market research sponsored by China Mobile, the mobile

Content and application providers offer different kinds of data services to drive the contents and applications from wireline to mobile wireless world. Since TD-SCDMA enables both voice and data communication with proper transmit rate, more and more customers are seeking out information, such as integrated messages, targeted business content and entertainment resources, through new channels (Web sites, bookmarks and picture messages) rather than traditional channels (radio, TV and print). Some of them set up websites (www.mentemet.com, www3.caishow.com) for

- 1389 -

customers to browse all the available content and applications. The downstream players of the evolving value chain can be called as content and application enablers. They help to make the content and applications suited for mobile wireless transmitting. Some of them adapt the content to a rapidly expanding mobile subscriber base on multiple devices and a r interfaces. Some of them transfom the i content to the format that can be transmitted through mobile wireless worId. Some of them develop wireless platforms and utility applications to give users access to content from the wireline world. Others use conversion tools to create portals that deliver content suitable to mobile wireless devices. Mobile wireless content enablers can be broadly classified into four categories: service bureaus, middleware and content delivery applications, portals, and systems integrators and consultants[].

AII these features strengthen the competence of TD-SCDMA. the same t m ,TD-SCDMA w s proposed At ie a
two years later than CDMA2000 and WCDMA. Its development of facility drops behind other countrys. Both these facts affect the scde of the TD-SCDMA based network to expand. Therefore, TD-SCDMA faces some critical problems: how can TD-SCDMA step up and build up its own value chain before CDMA2000 and WCDMA dominating the Chinese mobile communication market? GSM and CDMA both have mature vahe chains and their coverage is far and wide. However, TD-SCDMA is at the jumping-off p i n t and has no industrial foundation. How can it find a foothold somewhere and compete with the other two? Some technology advantages of TD-SCDMA need other nodes of the value chain to support. How can TD-SCDMA make use of those advantages and transfer them to its own competitive advantage? Firstly, besides speeding up technology improvement, TD-SCDMA can try to win -the support from the government. For example, delaying the license granting properly can leave TD-SCDMA time for technology improvement. Also, in the allocation of 3G frequency, Chinas Ministry of Information Technology has reserved 1 5 for TD-SCDMA, &d 60M for WCDMA and 5M CDMA2000 respectivelyo1. Without doubt, such strong support endows TD-SDMA with attractive competence. Secondly, China should search partners to accelerate the development of TD-SCDMA, rather than letting Datang do it alone. Then Datang can not only acquire enough capital but also have an interest group. If some foreign companies are in the interest group, it helps to spread TD-SCDMA in foreign market. In the interim of development from 2G to 3G, the standards TD-SCDMA has to compete with are WCDMA, CDMA2OO0, GSM and CDMA. Since TD-SCDMA can bk transited from GSM system, there is indirect cooperative relationship among GSM, WCDMA and TD-SCDMA. Therefore., they can cooperate with each other to compete with the other two standards. Except for the competition among the network operators, the players of the other four nodes also face many choices because of the different standards. For instance, the terminal manufactures have to decide their handsets to fit which mode or to be dual modes. There is competition in the same nodes of the value chain. For example, the content providers can specialize in entertainment resources or business service. They may provide integrated services too. Therefore, setting up a value chain for TD-SCDMA is also a process to attract players from the elements of the other value chain, such as that of GSM or WCDMA. TD-SCDMA should integrate its technology advantages, strategic advantages and cooperation advantages to amact players in the nodes to get alliance. It will strengthen the power of TD-SCDMA industry and is beneficial to the development of the nodes of the value chain. Alliance will make better use of the technology

IV. ALLIANCE AMONG THE PLAYERS

New markets and new entrants have pricked up the competition. The competition is especially apparent among the different standards-TD-SCDMA, CDMA2OOO and WCDMA.Each nodes of the value chain have to choose which standard to follow. China Mobile prefers WCDMA that can be evolved from a GSM network much more easily, while China Unicom prefers CDMA2000 that can be evolved f o CDMA. Because this movement from 2G to rm 3G is a chance for the operators to increase their market share, more operators such as China Telecom and China Tietong want .to enter the mobile wireless universe. However, the new operators choice, even the players who can have the pie is uncertain. But it is sure that the competition among network operators will k much more furious. TD-SCDMA still has some advantages. Compared with WCDMA and CDMA2000, TD-SCDMA has certain distinguishing characteristics]. First, the application of s a t antenna brings many advantages: with the low chip mr rate of 1.28Mbit.k TD-SCDMA can significantly improve the efficiency of spectrum usage; it saves the energy and improves the power efficiency of the base stations; the antenna arrays strengthen the reliability of the base station; as smart antennae use an array of small power amplifiers, which are much cheaper than a single high power amplifier, the cost of base stations can be reduced dramaticdy. Next, as the expectation that 3G is m i l used for downloading any contents from wireless portals, TD-SCDMA uses two asymmetric bands for uploading and downloading traffic. Third, the application of software-defined radio reduces the size and cost of the system. And on the other hand, it may serve to overcome Chinas weakness in chip manufacturing technology. The last and most important feature of TD-SCDMA is that it can enable a smooth transition from current GSM system to future 3G systems. The TD-SCDMA is designed as a dual band and dual mode system[].

- 1390-

advantages of TD-SCDMA. According to the information mentioned above, TD-SCDMA supports both GSM and 3G services"']. Only when the handsets have functions supporting these characteristics can TDiSCDMA transfers this technology into competitive advantages. However, without alliance the handsets may be differentiated by their terminal manufactures and lose such functions. Alliance also avoids some problem caused by incompatibility. For example, Japanese handsets for i-mode and those in Taiwan are convincing example and counterexample concerning image download. The sizes of the screen of handsets for i-mode in Japan are the same, so the customers can send the images downloaded to each other. This is beneficial to the diffusion of the i-mode. On the contrary, due to the different sizes of the screen of the handsets in Taiwan,images download service there meets w t block. So whether the modes of handsets are ih compatible with each other may affect themselves because of network externality. Then the development of upstream nodes may be affected thereby. The setting of content enablers affects the enthusiasm of the content providers to a degree. In the famous i-mode case, it provides a platform upon which content providers supply the content, either for free or for a small premium fee, which is set at a maximum of 300 Yen per month. NTT DoCoMo shares traffic revenue related to content with the providers of the content, and typically keeps a 9 per cent commission fee. This has provided a strong incentive for content providers. As a result, a large amount of Japanese contents is now available. In April 2000, for example, 4.48 application alliance partner companies and 8,023 voluntary i-mode Internet websites, including 20 search engines, have content provision contracts with NTT DoCoMo. The availability of all of this content has attracted more and more subscribers. As more subscribers sign up for i-mode, more content providers are enticed to provide more content. A positive feedback process is thus established['21. The process for each node to profit indeed is the process for the whole value chain to profit. The players in the same node need to come to an agreement in some aspects. The different nodes of the value chain need to ally with each to conform to the same object in order to avoid conflict of interest. Further more; the players can consolidate their

long-term relationship with upstream or downstream through the alliance.

V. CONCLUSIONS 3G brings great improvement to mobile communication industry and the value chain evolves. It is also a chance for the industry in China to stride because of TD-SCDMA. Challenge is the concomitant of chance. TD-SCDMA has to set up its own value chain and overcome the problems in the mobile communication world that dominated by GSM and CDMA. The industry alliance among the industry players, standard setting organizations and government agencies is a strong weapon of TD-SCDMA and China mobile communication industry. In October 2002, eight famous domestic firms including Datang, Huawei and Lenovo initiate the industry alliance of TD-SCDMA. In April 2005, the alliance has 21 members that cover all the nodes of the value chain of the indu~try''~]. TD-SCDMA in . China is speeding up its paces.

RF3ERENCES Meng, W.S. and Yao, C.F.(ZOOO) The 'Golden Goose' of Chinese
Mobile Indusq, People's Posts and Telecommunications,4 July

Xu Yan,"3G Mobile Policy: The Case of China and Hong Kong, CHINA"
Wang, F.(2001) A great stride towards 3G's future, Datang Group Newsletter, 1 April Nan, M. (2000) Chinese Standard, Popular Computer Week, LO July Lu, T J (ZOOO) The Development of Mobile Commerce in China, .. Promding of Asia-Pacific Mobile Communications Symposium, pp.

100-110 Feng Li,*, Jason Whdley , Deconstruction of the telecommunications industry: fromvalue chains to value networks, Telecommunications Policy 26 (2002) 451 - 472 Hemant Kumar Sabac The evolving mobile wireless value chain and market structure, Tel~ornmunications Policy 26 (2002) 505-535 Li, S.H. (2000) Radio Transmission Techniques in IMT-ZM)O, China Communications, No.37,November, pp. 21-24 idem [lo] www.mii-gov.cn [ I l l Yang, Y.G. (2000) 3G Evolution strategy in the Chinese context, People's Daily. 20 December [E] Xu, Y. (2001) R t r of the tigers: Asian-Pacific innovation in eun mobile communications,INFO, Vol.3 No.3, pp.195-206 [131 htrp://tech.sina.com.cn/rrZ005-04-18/1~585489.sh~

- 1391 -