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New "G" on the Block

Written by Brian Hicks
Posted December 27, 2005

We here at Wealth Daily like to throw ideas around the office. The brilliant, the stupid, and the downright goofy - all have a place in the forum boxing ring. Sometimes, though, ideas aren't just conjecture. Ideas are realities that are just waiting to kick in. On that note, I'd like to introduce you to a colossal concept called Functional Integration.

I know, functional integration sounds like a trendy floor lamp you put together using instructions written in every language other than English. But functional integration isn't something you can buy at IKEA or any other store claiming to make your life easier through modular systems.

It's not about fitting things together. It's about fitting ideas and needs together into a seamless whole, facilitating the basic tasks of modern life by incorporating them in a streamlined fashion.

We see it all the time. Luckily, our western commercial society is usually on the cutting edge, riding the razorblade all the way to new horizons of information and innovation.

China is now in a situation where, as I alluded to before, they see a new reality unfolding and they cannot simply wait for it to transpire. They must build a functionally integrated society with haste - the Olympics are just around the corner.

Remember "Ring Ring"?

Let's face it, things have changed. My grandmother, may she rest in peace, experienced terrible shocks in rapid succession as the 20th century came to a close. First there was cable TV, then VCRs (thankfully, I don't think she ever knew about BetaMax), then finally the rise of the Internet.

"Oh, hun, I don't know about all that 'dubya dubya dubya'...I can't find it!" she once puzzled, gesturing to her rotary phone.

Following the model of functional integration, it is already an impossibility to market a cellular telephone with a numeric keypad alone. SMS text messaging, downloadable ringtones of hit songs, and built-in cameras are no longer costly add-ons but expected features in mobile handsets.

What a nightmare for Grandma, and what a dream for me!

The next step is 3G, the third generation of mobile phones, which incorporate technology such as video and non-voice audio with the basic communication of a telephone.

What this means for China is that come 2008, cell phone users will be able to access clips of Olympic events from taxis and buses - also prepare to watch basketball highlights on your phone while sitting in the stands at the decathlon.

China Unicom recently ordered a production surge in mobile phones that work on the second-generation (2G) GSM standard and the 3G CDMA varieties as well. These dual-use phones will allow optimal reception for all available forms of content. But the Chinese government needs to give 3G development the boost it needs and deregulate development adequately to fuel exploration while maintaining the basic integrity of the system.

3G from Scratch

By the first quarter of this coming year, China will inaugurate its home-grown CDMA technology, called TD-SCDMA. TD-SCDMA is not the most favored international mode, but if the Chinese know what is good for their international business sustenance (which they do), Chinese 3G will be hospitable to foreign-made 3G equipment. Beijing cannot afford to have millions of frustrated Olympic tourists stare at blank video screens on their handsets.

Indeed, it is already possible to fire up your American phone and jabber away while still standing in the customs line in the Beijing airport. I stared with amazement the first time I saw an American businessman place a call in that very spot as if he had just touched down in Detroit.

For international travelers and for Chinese alike, 3G will spell not only convenience but essential function. It will be entertaining as well, with interactive mobile-only "TV" shows already in the works. Judging by the success of American Idol and its worldwide counterparts, the interactive 3G TV market will be hugely lucrative.

At the end of last month, the tally of Chinese mobile phone users stood at 388 million. That makes China the largest cell phone market in the world, and the accessibility and affordability of mobile phones gives the industry a sizable advantage over land lines.

As we say at Wealth Daily, the tether is out, and ether is in.

More people choose mobiles over land lines for that simple reason, and with the rise of more and more into consumer access, it makes sense for firms and the bureaucracy to invest in air-based infrastructure instead of erecting costly and labor-intensive lines across the country for the sake of a dying technology.

The 388 million current cellular users represent only 29 phones out of every 100 residents. That means that this market will continue to grow (16% per year), and all aspects of consumption will be affected. Motorola, Nokia, and China Mobile are running the "Green Box Environment Protection Plan" for recycling old 2G cell phones as the masses switch to up-to-date models.

As a final and provocative note on China's 3G future, I want you to consider that most China-based handset makers actually suffered losses this year. But the few who profited did so in a big way.

Keep up to date with the Waking Dragon for more on which players are in the game to win and which scrubs need to ride the bench until they can get in shape for a truly competitive and mature market.

- Sam Hopkins


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