Wi-Fi phones might create new markets for business growth

The Ministry of Information Industry's China Telecommunication Technology Laboratory recently revealed plans to permit and license Wi-Fi in addition to WAPI as China's national standard for the wireless LAN (local area network).

How will the use of Wi-Fi phones affect China's top three telecommunications companies and the wireless Internet industry?

WAPI - for WLAN Authentication and Privacy Infrastructure - is China's standard for wireless LAN.

It is a close-range wireless technology with consolidated security that was developed based on Wi-Fi, the international standard for wireless LAN.

Wi-Fi was designed to enable users to gain wireless access to the Internet at a maximum speed of 11Mbps in small and restricted areas such as the airport and coffee shops. This allowed its use in a majority of countries.

Laptops with Wi-Fi access have been available in China for some time.

However, since WAPI was made the national standard for wireless LAN, it became mandatory to produce and sell only mobile phones installed with WAPI access.

The Chinese government even tried to promote WAPI as the next global standard. In November 2003, the Chinese government petitioned the use of WAPI as the international standard. However, due to objections from US companies such as Intel and Broadcom, the petition was rejected.

In June 2009, WAPI won the support of previously opposed countries and became an international standard.

Accordingly, the Ministry of Information Industry lifted its restrictions and permitted the sale and use of Wi-Fi phones.

Once the government permits the use of Wi-Fi phones, the scale of China's mobile and Internet industry - as well as investment - will show considerable growth.

As the Wi-Fi network enters the Chinese market, the 3G network bandwidth limitations will be resolved, as well as concerns about an overload of the 3G network, which would result in an increase in rates.

China's telecommunications businesses have reported plans to increase their investment in Internet hot spots, which are areas where computers can connect wirelessly using either Wi-Fi or WAPI.

China Telecom reported that it would increase the number of hot spots to 100,000 by the end of 2009. At present, the number of China Telecom users - 3,000 in total - is no match for the numbers of China Mobile and China Unicom users, which are estimated at about 500 million and 100 million, respectively.

It is expected that China Telecom will benefit the most from the launch of Wi-Fi once the company launches Tianyi. Tianyi is a new brand that incorporates both CDMA and Wi-Fi and has the potential to absorb the majority of Wi-Fi users in China.

China Mobile's future, on the other hand, looks bleak after neglecting to invest in fixed broadband, which is the foundation of Wi-Fi, and falling behind in the race for market placement, making future investment even more difficult.

In general, telecommunications companies will face a decline in profits, and mobile phone producers will benefit from the new market.

Once mobile phones are installed with the Wi-Fi function, sales of mobile phone producers will drastically increase.

By contrast, telecommunications companies are likely to face a sharp decline in earnings stemming from their 3G access services due to the rapid increase in free Wi-Fi users.

As the number of free Wi-Fi users rapidly increases, telecommunications companies must create a new profit model by developing a variety of profit-making contents.

During the 3G era, telecommunications companies could expect large profits from simple services such as voice mail, text messages and connection fees.

However, connection fee profits will drastically decline once Wi-Fi becomes available.

Telecommunications companies must attract the interest of potential clients with free Wi-Fi access and then develop services that create a new, profit-making model.

The use of Wi-Fi phones will also act favorably to related businesses. Until now, handsets, chips and basic equipment have all been produced according to the WAPI standard. The Wi-Fi standard will provide a new market for growth.

There will be extensive investments in Wi-Fi hot spots such as main facilities, libraries and coffee shops. Plus, there will be rapid distribution of software that has been developed to accommodate both Wi-Fi and WAPI.

It is absolutely necessary for the Chinese government to assess the gains and losses of adopting an international standard and to create a flexible industrial policy, rather than insisting on maintaining a national standard.

By permitting the use of Wi-Fi, China has opened numerous doors to opportunities for industrial growth, increased exports and foreign investments.

The author is a researcher with Samsung Economic Research Institute (China). The views expressed here are her own.

(China Daily 08/31/2009 page2)