Matei Mihalca writes in his Business Standard column:
China has over 300 million mobile users. This user base is providing a foundation for China to enter a variety of segments of the mobile communications industry.
A cluster is emerging, driven by massive end-demand. Taiwan developed a cluster in the 1980s and 1990s based on PC-related demand, but much of the value resided elsewhere (in Intel chips and Microsoft software). A similar process is underway in China in wireless, but this time there is an opportunity to capture more of the value.
Chinas mobile subscribers fall into several categories: a majority use GSM, the European standard; some use CDMA, Qualcomms technology; and a few PHS, a standard originated in Japan.
China Mobile is the largest carrier and it uses GSM; ranked second, China Unicom uses both GSM and CDMA. Fixed-line operators China Telecom and China Netcom entered the mobility field late, a bit like Reliance in India, via PHS, which is a wireless local loop (WLL) technology.
The role PHS has played in China is not unlike that WiFi may play in developed Western markets. PHSs success has been shrouded with uncertainty, but its hard to argue with 30 million users at the end of 2003, and perhaps double that figure by the end of this year.
Chinas equipment makers fall into similar categories, each one stronger in one particular technology. The largest, Huawei, has been a supplier of GSM systems, primarily to China Mobile. The second largest, ZTE, has been more active in CDMA, supplying Unicom.
Gradually, a virtuous cycle is appearing: Chinas mobile users create demand which domestic equipment makers meet; in turn, the equipment makers need parts, which they source locally.
As more companies in this cluster go public (China Netcom and ZTE are also planning IPOs), the sector becomes more attractive overall. Thats because fund managers and analysts will be able to deploy their industry knowledge across a broader spectrum of companies. Theyll also be able to corroborate data across the value chain.
In turn, this will help companies in the cluster secure access to capital. At the same time, the cluster will expand beyond China. The Chinese wireless industry is a unique model the country will increasingly export to other parts of the world.
India needs a similar cluster philosophy for software products.