By Maurie Dobbin

Asia leads the cdmaOne drive for global market share with almost 80% of the world’s CDMA subscribers. Korea is far and away the dominant market, but a number of other countries in the region have chosen cdmaOne — and more are likely to follow.

There are now 4.25 million cdmaOne subscribers with 3.35 million of them found in Asia. That was the estimate of the CDMA Development Group (CDG) at the recent PCS ’97 trade show in Dallas. The CDG went on to predict a surge in cdmaOne growth led by the rapid expansion of the North American market but strongly influenced by the continued expansion of the Korean market and the entry of cdmaOne into the skyrocketing Japanese market.

Barry Sine at SBC Warburg Dillon Read in New York is among the more bullish forecasters, predicting that there will be 100 million CDMA users globally by the year 2000. Another New York stockbroker, Merrill Lynch, is more conservative, predicting 78 million cdmaOne customers by the same time.
Both of these projections are far in excess of what The Yankee Group predicted during IIR’s 2nd Annual World Congress back in May.

Mark Lowenstein, Vice President Wireless Research and Consulting predicted then that cdmaOne subscribers would represent around eight percent of the world’s cellular customers by 2000, which would have equated to around 32 million people. Lowenstein also predicted that by 2001 around 40 per cent of the world’s subscriber base would originate from Asia Pacific. On that basis, and using the latest stockbroker estimates, the number of cdmaOne customers in Asia Pacific by 2000 is likely to be between 30 and 40 million.

Perry La Forge, Executive Director of the CDG, explains his reasoning for this predicted rapid expansion in cdmaOne customers: "We expect the growth of worldwide subscriber numbers to accelerate in the next year due to three major causes", he says. "First, the rollout of cdmaOne PCS networks in Canada and the continuing and buildout of PCS systems in the United States will boost subscriber numbers in North America.
Second, the planned launch in 1998 of cdmaOne cellular service in Japan and PCS service in Korea will result in a huge increase in subscribers in Asia. Third, the launch of cdmaOne Wireless Local Loop (WLL) networks in Brazil, India, Russia and other developing nations will bring the superior call quality of cdmaOne to an entirely new group of subscribers".

Asia is already the fastest growing market for cellular across all standards, driven by the rapid acceptance of the benefits of mobile communications in Asia’s crowded traffic-choked cities and the increasing substitution of wireless technology for inadequate and poorly maintained copper networks. Now cdmaOne with its reputation for improved voice quality and more economic infrastructure deployment is capturing the imagination of the region’s carriers. The direct evidence of this is the record numbers of delegates attending CDMA seminars and trade shows across the region.

Korea has been the powerhouse for CDMA in Asia with the two 800 MHz carriers, SK Telecom and its new competitor Shinsegi, sharing more than three million cdmaOne customers between them. SK Telecom, the monopoly carrier until Shinsegi commenced operations in 1996, recently reported that it has doubled its CDMA cellular customer base this year to 2,107,000, which, added to its 1,899,000 analogue customers, makes the Korean carrier the eighth largest cellular service provider in the world.

Faced with strong competition from the AirTouch-backed Shinsegi, and threatened with added market pressure from three new PCS networks, SK Telecom has recently dropped its cellular rates by 12.7% and restructured its calling plans. Some of its other defensive moves have included the lowering of deposit fees from $225 to $25 and the development of a customer loyalty program entitled the ‘011 Leaders Club’, members of which are entitled to emergency roadside assistance, free replacement of lost or stolen telephones, and discounts on travel services and electronics products.

CHEAPER CALLS
Competition in Korea stepped up a notch in the last couple of months with three CDMA-based PCS carriers opening their doors for business. Hansol PCS launched its ‘018’ PCS service on August 22 closely followed by LG Telecom’s ‘019’ service on 30 September and KT Freetel’s commercial service launch on October 1. Market analysts have predicted that 10% of Korea’s five million cellular customers will be lured to the PCS networks in 1998 by the promise of cheaper calls. But the flip side is the anticipated stimulation of the market with lower prices boosting subscribers to an estimated 10 million customers by 2001 according to Suh Yong Won, a senior analyst with Dongbang Peregrine Securities. The result is predicted to be a lucrative mobile phone market worth $10.99 billion.

Hansol PCS has already claimed a head start stating that it had signed up 600,000 customers prior to its launch. Speaking at the opening ceremony, company President Jung Yong-mun told the audience that Hansol’s approach to investing in the service has enabled the company to offer subscribers the least expensive calling rate of the nation’s three PCS carriers. Subscribers who signed up early for the service were offered a discounted handset plus 300 minutes of free calls. The company has predicted that it will have 700,000 customers by year-end and plans to increase that to 2.3 million subscribers by the end of 1998. Hansol is owned by 248 shareholders including Hansol Paper, Dacom Corporation and Hanwha Co.

LG Telecom has stated that it wants to establish a brand image which puts quality first. The company will be focusing on the consumer market with the objective of making it simple and easy for customers to sign up for their service. LG’s retail sales outlets will include gas stations, supermarkets and convenience stores.
KT Freetel, the PCS arm of state-owned Korea Telecom has also adopted a low price strategy making it certain that costs for Korean mobile phone customers will fall sharply in the next few months.

A low-cost strategy for the PCS operators was inevitable considering that they needed to offset their coverage disadvantage to SK Telecom and Shinsegi. The real question is whether this strategy will spill over into an all-out price war involving all operators. Already the three PCS operators have been spooked into launching earlier than they intended.

At this year’s CDMA World Congress, KT Freetel laid out a more rational low growth policy based on a commercial launch in 1998. Dr Sang-Chul Lee, President and CEO of KTF stated that he expected that the company would have around 1,400 base stations by the end of August. This, he said, would enable coverage of all 75 major cities, major freeways, highways and main resort areas. However 1,400 major stations is a long way short of providing comprehensive coverage of Korea. Hansol has already noted that they thought they would eventually need around 4,000 base stations.

This is a great deal more base stations than SK Telecom has installed but they have the benefit of working at 800 MHz rather than 1700 MHz. SK Telecom are claiming that by year end that they will have coverage of 95% of the Korean population utilizing around 1900 base stations. The coverage claimed by KTF roughly equates to what SK Telecom was providing in 1996 using around 850 base stations.

APPLICATION
What remains to be seen is whether SK Telecom will commence its own PCS service. The company has applied to the Information Ministry for an operating license, but its application has been opposed by its four rivals who want SK Telecom’s entry delayed.

SK Telecom believes that it needs access to PCS frequencies in order to effectively defend its market. It expects that it will be awarded the frequencies sometime in the second half of 1998 but there has been no confirmation that the government agrees with this timetable.

The company is understood to have been running a trial system at 1700 MHz to test the degree of integration it can achieve with its 800 MHz network.

The major beneficiaries of the Korean market expansion have been local suppliers and, to a degree, U.S.-based Lucent, Motorola and Qualcomm. Investment in network equipment and handsets has been estimated as worth $3 billion annually until the end of the decade. Samsung Electronics, LG Information and Communications and Hyundai Electronics Industries have emerged as the dominant local suppliers. Peregrine’s analyst Suh Yong Won expects that LG will receive around $350 million in orders for switching systems over the next three years from LG Telecom. LG has a 15% stake in the PCS company. LG will also benefit from requirements of SK Telecom with orders in excess of $800 million expected.

Lucent was the first overseas supplier to win a major CDMA infrastructure contract in Korea. In October 1996 the company won a $71 million contract from Shinsegi to supply and install a CDMA wireless network in Pusan and Kyungham. This was followed by a $93 million order in April 1997 from Hansol.

Under the latest contract, Lucent will provide two MSC and 300 base stations. Lucent said at the time that the contract was significant because its was their first PCS contract outside the U.S. and one of the largest CDMA contracts outside North America.

OPEN SYSTEM
This contract was dwarfed by the March 1997 $180 million order received by a consortium of Daewoo Telecom and Motorola to supply KTF’s needs. The contract consisted of Motorola’s base station equipment and centralized BSC together with Daewoo PCX switches. The contract was notable as the first example of an open system architecture CDMA system in South Korea.

Handset suppliers have also been beneficiaries. SK Telecom itself has decided to enter the mobile phone manufacturing business signing a licensing agreement with Qualcomm. The license includes the right to manufacture and sell IS-95 based wireless local loop products as well as subscriber handsets. Handsets, particularly PCS handsets, are in short supply at present, due to the earlier than expected launch of the new carriers.

Rushing to fill the gap are suppliers like Hyundai who plan to produce 350,000 units before the end of the year. Motorola will also supply 100,000 handsets in November while 600,000 units are expected from Samsung and another 400,000 from LG Information & Communication.

Hyundai’s new PCS handset is reported to weigh just 135g and measure 124mm x 50mm x 24mm and utilizes a curved design. The handset comes with 58 hours of standby time and 240 minutes of continuous talk time, and incorporates features such as noise-reduction and a display for short messages.

The Korean market is also notable for pioneering the development of enhanced services. Korea was the first market to develop a short message service for CDMA. The Electronics and Telecommunications Research Institute (ETRI) announced the development earlier this year, enabling subscribers to send a short message in Korean or English to another subscriber or receive a message from a public telephone network, a data communications network or the Internet.

The Japanese mobile phone market awakened with a bang during 1996, stimulated by competition and reduced cost of ownership. During that year, the number of mobile phone customers jumped by 10 million, trebling the subscriber base and putting under stress the ability of the operators to absorb the demand. The pace has not slackened during 1997 — indeed it has continued to accelerate, with another 10 million customers being added in the first six months of the year. According to official MPT figures at the end of September there were 26,085,000 cellular subscribers in Japan. This extraordinary growth has meant that Japan has been forced to look for spectrally efficient solutions to conserve a fast diminishing resource.

MARKET GROWTH
The problem was first recognized in 1995 with a Committee for Efficient Utilization of Cellular Spectrum formed under the auspices of the Telecommunications Technology Council of MPT. The terms of reference of the committee were to forecast the market growth of mobile communications, analyze the capacity limit of existing cellular spectrum and recommend measures to increase system capacity. The committee produced an interim report on April 1996 which nominated CDMA as a possible candidate subject to an investigation on how it could be employed in a migration from existing analog bands.

The final report of the committee in February 1997 confirmed the earlier finding, making a specific recommendation in favor of IS-95 CDMA. This report was officially approved by the Telecommunications Technology Council of MPT on February 24, 1997. In March 1997, the first draft was completed of a modified version of the IS-95 standard.

The principal differences in this standard were the frequency of operation, its ability to work in dual mode with the analogue TACS cellular standard, and support for Japanese characters.

The same month, two of Japan’s leading cellular service providers, DDI and IDO announced that they had placed a 300 billion yen ($2.43 billion) contract with Motorola to build a CDMA network across their service areas. DDI Cellular has stated that it will initially concentrate on the Kansai region, and the major cities of Osaka, Kobe and Kyoto, and then expand to other areas nationwide. IDO was to begin building its network in Tokyo and Nagoya and then expand coverage to the remainder of the region.

Trial systems for both companies are scheduled to begin before the end of 1997 with commercial launches planned for the second quarter of 1998. The combined nationwide CDMA coverage with more than 1,500 cell sites is planned for 1999.

Hutchison Telecommunications in Hong Kong has the distinction of being the world’s first commercial operator of a CDMA network. The contract was placed with Motorola in 1994 and, after extensive trials, a commercial service was launched in September 1995. But Hutchison was still hesitant about promoting the new network, partly because it was still fine-tuning coverage and quality, and partly because there were very few handsets available.

This changed in March 1997 when Hutchison relaunched the service under the brand Xin Gan Xian. With monthly fees of HK$190 bundled with 100 minutes of free airtime Xin Gan Xian was clearly targeted at Hong Kong’s new PCS operators. The new price plan was pitched at a third of the tariffs of Hutchison’s GSM network and the objective was to treble the customer base by the end of 1997. Investment analysts, Salomon Brothers, have estimated that Hutchison will have 150,000 CDMA customers by then.

LIMITED
Despite the slashing of tariffs, there is no doubt that Hutchison’s network continues to be limited by the lack of variety and the limited features of CDMA phones. Last year Hutchison placed two orders with Korean supplier Samsung each for 20,000 phones worth in total more than $20 million in an attempt to bring more attractive terminals on the market. But even today there are still just five CDMA models from three manufacturers approved by OFTA. This hardly compares with the hundreds of models available for GSM networks. Even TDMA handsets boast 29 models approved by OFTA.

Hutchison’s PCS-busting strategy for its CDMA network has also been challenged by the new operators and Mandarin PCS in particular. During September Mandarin released their ‘Sunday’ tariff plan offering unlimited airtime for a flat HK$88 per month. This is described as a promotional tariff available only to March 1998 and is clearly designed to offset the current coverage disadvantage of PCS. The inclusion of the dual mode GSM900/1800 Motorola DB880 handset in Mandarin’s product line-up does, however, throw down a challenge to Hutchison as it allows customers the option of switching SIMs when they run out of PCS coverage.
Analysts First Boston have estimated that the PCS operators are at least six to nine months away from being able to provide coverage comparable to the established cellular networks.

MobileOne, Singapore’s new mobile competitor has pushed back the commercial launch of Asia’s first 1.9 GHz CDMA network until early next year. Originally scheduled for service in the last quarter of 1997 M1 has cited the limited availability of attractive handsets as the principal reason for the delay. M1 has stated that so far it has invested $50 million on the development of its CDMA network. This compares with the $150 million it has invested in GSM to date. M1 recently celebrated the connection of 100,000 customers, doubling the projections made before the company launched their service.

TRIAL NETWORKS
Great Wall Telecommunications, a 50:50 venture between China’s Ministry of Post and Telecommunications (MPT) and the commercial arm of the People’s Liberation Army (PLA), is set to launch the country’s first commercial CDMA service. In the past couple of months, Motorola and Lucent Technologies have confirmed that they have successfully tested the roaming capabilities of their trial networks.

The entry of CDMA into China’s booming cellular market has been facilitated by the opening up of 800 MHz frequencies previously reserved for military use. There are currently four CDMA trial networks under development in Beijing (Motorola), Guangdong (Lucent Technologies), Shanghai (Samsung) and Xi’an (Nortel). These trials followed successful field testing of CDMA between China Telecom and Qualcomm in Tianjin back in early 1994.

The CDMA trial system in Beijing announced last April uses 31 of Motorola CIG's SC™2450 base stations, two CBSC (Centralized Base Station Controller), one OMC-R (Operation and Maintenance Center Radio) base station control system and one large capacity EMX(R) 2500E mobile switching system. The initial capacity of the Beijing CDMA commercial trial system is 43,000 subscribers, and is claimed to be the largest CDMA system in China. The system already covers most of the city center out to the third ring road.

According to the South China Morning Post, the Beijing network should go commercial before the end of this year. Once the trials in the other cities are completed it is planned to roll out the service across 35 cities in up to 20 provinces. There have been some suggestions that the MPT is looking to delay its official approval for commercial launch of CDMA in order to give more time for their own networks to expand but a recent $300 million handset order on Qualcomm by the Beijing PTA would indicate that any delay is likely to be minor. The involvement of the politically strong PLA is another reason why MPT would be more cautious about using delaying tactics similar to those it has employed with China Unicom.

Total Access Communication (TAC) placed an order on Lucent Technologies late last year for the implementation of a CDMA network covering Bangkok and the central region of Thailand. The contract is to convert the CAT- owned network in the AMPS A band to CDMA and was announced as involving two MSCs and 69 cell sites with a capacity of 150,000 customers.

Shortly after this announcement, TAC placed another contract, this time with Motorola, to install a narrow-band NAMPS system to serve their 600,000 WorldPhone 800 customers in the AMPS B band. The $120 million contract included the provision of Motorola’s digital-ready SC9600 base station which supports AMPS, NAMPS and CDMA radio technologies. The intent was clearly to free up sufficient spectrum to enable the introduction of a CDMA carrier.

OVERLAY
This was confirmed in October when Mustapha Man-Nga, Senior Vice President of TAC, told delegates to the 1st International CDMA Asia Pacific Summit in Japan that 177 sites had been installed in Bangkok to support a CDMA overlay on the existing analogue system. TAC, he said intended to use one CDMA carrier for the first and second year of operation with the second deployed when 250,000 subscribers were reached.

The network would use an 8kbit/s vocoder with the enhanced variable rate coder option. The objective was to achieve a commercial CDMA launch within a few months of letting a contract however the project is understood to be on hold while the current financial problems in the region are being sorted out. Both Motorola and Lucent are reported to be in the running for the contract.

Philippine cellular operator Pilipino Telephone Corp. (Piltel) is using the launch of its CDMA network to improve its image with customers. The company is claiming that CDMA will give it additional capacity and improve its overall quality of service. Their objective is to migrate around 10,000 to 20,000 of its higher-end users to the new CDMA network. Ernesto Garcia, Chief Operating Officer of Piltel, stated at the recent Japanese CDMA Summit that Piltel had trialed an IS-54 system before deciding on CDMA.

The company has had a rough year, losing its ranking as the leading cellular operator in the Philippines to newcomer Smart and suffering severe cloning and fraud problems. Piltel’s Mobiline service currently supports around 320,000 customers, some 10,000 less than it declared at the end of 1996, due to the disconnection of fraudulent subscriptions.

During August, the company wrote off a further 22,000 customers and added 4,000 others. Security analysis group First Boston believes that similar numbers could be written off in September in a final clean-up of Piltel’s customer base. Piltel’s CDMA contract was split between Motorola and Lucent with Motorola responsible for the Metro Manila network and Lucent supplying a network for the Northern and Southern areas of Luzon.

BLUEPRINT
Lucent Technologies is currently implementing a $105 million CDMA overlay network for Indonesian AMPS operator Komselindo. Awarded in February this year, Phase 1 of the contract will serve subscribers around Jakarta and Bandung in West Java, Manado and Ujung Padang on the island of Sulawesi, and Medan, Padang and Banda Aceh on the island of Sumatra. Komselindo’s CDMA blueprint calls for the eventual establishment of a 750,000 subscriber network. More than 300 base stations and the 13 kbps vocoder will be supplied and installed by Lucent.

CDMA’s chances in Australia have been boosted by the Government’s decision to auction 800 MHz frequencies. Under the rules announced for the auction, 10 MHz of spectrum will be set aside in the 800 MHz band for new entrants, with CDMA being touted as the best chance for a newcomer to build a differentiated business.

Motorola and Samsung have been strongly lobbying the Government to ensure that the benefits of dual mode AMPS/CDMA are not overlooked. The spectrum auction has now been pushed back to 1998 to allow the Government time to consider important issues such inter-carrier roaming and whether the closure of AMPS network is in the best interests of the public.