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What China's innovation gap tells us

Earlier this week I posted to Light Reading about the almost total absence of telecom start-ups in China, despite it being the world’s largest supplier of telecom gear.

It’s the one high-tech sector where the country can claim leadership, and the lack of start-ups is a significant gap in what Chinese call the 'industry chain’. Not that start-ups are the sole engine of innovation – far from it – but they are a great way of concentrating resources and attention on specific issues and technologies.

The industry structure is at the heart of the problem. The oligopoly in the services market means operators have little incentive to innovate, and this in turn puts market power in the hands of vendors, who make sure small vendors stay small.

Other factors also come into play, such as the weak research sector and corruption and plagiarism in science, compounded by the government's ham-fisted attempts to micro-manage innovation.

There’s an interesting analogy in the aviation sector, another vertical where China has great ambitions. Citing a new Rand Corp report, the Wall Street Journal points to the tension between the airlines, who want the most efficient aircraft possible, and the state-owned manufacturer trying to find buyers for its dud planes. (For those interested, James Fallows’ excellent China Airborne examines China’s innovation and wider economic potential through the lens of aviation.)

China’s telecom sector of course works far better than that, benefiting from a genuinely competitive supplier market, but similar strains between vendors, operators and government ambitions exist, as demonstrated by the mandating of TD-SCDMA and TD-LTE.

In the short-term this hardly matters for the telecom sector. Start-ups aren't the be-all and end-all of innovation, and there is plenty of global competition both to challenge the vendors and ensure operators get the technology they need.

But it's a problem for China, which aims to refashion its economy through science and innovation. Its inability to extract more innovation out of its massive telecom industry reminds that it is still a developing country and that achieving manufacturing scale is not the same as achieving thought or technology leadership.


At last, a mobile spam crackdown

Chinese police have finally cracked down on mobile base station spoofing, the source of an epidemic in mobile spam, reportedly arresting 1,530 people in a nationwide sweep over the past month.

According to the official Xinhua news service, a joint effort by nine government agencies has destroyed 24 “production dens”, seized 2,600 unlicensed base stations and uncovered 3,540 cases of fraud.

As this blog reported in December, one survey estimated that 200 billion mobile spam messages were sent in the first half of last year – roughly one a day for every single user in the country.

But it’s hard to overlook that this assault on spam began only after a prominent newspaper revealed the extent of the problem:

The Beijing News recently related the tale of a professional spammer who roams the Chinese capital with a small cell transceiver in his van, charging 1,000 yuan ($164) to reach thousands of users within several hundred metres.

The spammer, Guo Peng, said he had five GSM small cells, each costing around 50,000 yuan ($8,220), with which he earns up to 5,000 yuan a day. He can send out 6,000 messages in half an hour via the China Mobile or China Unicom networks. Guo said he knew at least 20 others in the business in Beijing, each with multiple base stations.

It’s difficult also not to contrast the belated interest in spam with the meticulous shutdown of unappetising political content on first Sina Weibo and now WeChat. One survey estimates that Weibo posts may have fallen by as much 70% after a series of campaigns last year.

Bear in mind, too, that mobile spamming is not victimless – it works by shielding an operator’s signal, causing calls to drop, not to mention the fraud and other criminal activities that spam enables. Plus of course the sheer annoyance to users. But these aren’t priorities.


Huawei ban is beating a path to protectionism

By the lofty standards of the NSA scandal, the revelation that it hacked not just Huawei’s servers but also its products may rank as a mere footnote.

But it sends a few more awkward questions to the agency’s inbox. Such as over the legality of planting backdoors in Huawei’s equipment. Does that enhance national security or is it unlawful over-reach?

There’s also the obvious point, made by Huawei executive William Plummer and many commentators:

“The irony is that exactly what they are doing to us is what they have always charged that the Chinese are doing through us.”

It reinforces the view of this blog that US suspicion of Huawei is a massive case of projection; the Pentagon, the CIA and the NSA fear that Huawei will do to the US what they are doing to everybody else.

In fairness, probing communications vendors, and especially those from China, the world’s most shameless cyber attacker, is a reasonable part of the NSA mission. Building backdoors is probably not.

But the NSA occupation of Huawei’s networks failed to yield any sign of an intelligence relationship with Beijing – something else this blog has previously inferred. In which case the US should allow the company to go about its business in the United States and elsewhere. 

The logic of the security state lays down a path to protectionism. This harassment of Huawei gives China the excuse to do the same to foreign companies in China. In a state-driven economy in a country held together by nationalist ideology, it doesn’t take much encouragement.

MIT’s Technology Review makes exactly that point:

But the bigger fallout may be a rise in protectionism. “It’s been mostly open competition since the beginning of the Internet, and the companies that did well are the ones that won the competitions,” says [analysts James] Lewis. Now, with escalating security worries, countries may take the chance to stack the deck against foreign competitors or build up their own industries.


Hong Kong TV drama

The Hong Kong government has put yet another obstacle in front of Ricky Wong's HKTV service. Since his application for a free-to-air licence was rejected, Wong has been refashioning his business and programming around mobile TV.

But now he's been told by the telecom and broadcasting regulator, Ofca, that because he's offering the service to more than 5000 households he needs a pay TV or free-to-air licence.

That sounds crazy. But, as legislator Charles Mok, who represents the IT sector, has explained on Twitter, it's about how the service “enters the home”. Wong has a mobile TV licence that he bought from China Mobile, but is accessing the home viewer via the set-top box.

Which according to Ofca makes it a fixed and not mobile service, and is why he apparently needs the licence. But this is a case of the regulator applying broadcasting rules to a telecom service.

Ofca, which is known to favour competition in telecoms and TV, is not the villain here, but Hong Kong's economic policy-makers who have done nothing about merging the city's telecom and broadcasting rules.

In light of the previous decisions to impede HKTV, it’s impossible not to conclude that the discovery of this loophole is just a lucky break for the Leung administration. No matter what Ricky Wong does, they seem determined to block him.

If this is a technicality, however, and the government genuinely wants to encourage a diverse media sector, then it will move quickly to change the law to allow HKTV to deliver its service into the home, thereby preserving 300 jobs and some HK$1 billion ($776m) in investment.

But don’t hold your breath.

The action meanwhile moves to the courtroom as Wong seeks a judicial review of the decision.

In a post on the Chinese language website, The House News, Mok accused the government of being hypocrites, having just re-established the Innovation and Technology Commission to advance hi-tech in the city. He wrote:

“I wonder, in the way the authorities have explained and administered the law, is it for the broad interests of the people, or to adhere to some other vested interest?”

UPDATE: Some reporting by the SCMP Thursday clarifies this a little. 

The paper says the issue is about HKTV's use of the DTMB standard instead of another Chinese technology, CMMB, which was being used by China Mobile, from whom HKTV bought the spectrum. Legal and tech experts say the Ofca decision violates the technology-neutral principle. 

Information Technology Federation honorary president Francis Fong Po-kiu said yesterday it was unclear who would win because the issue - whether DTMB could be applied to mobile television without further restrictions - had no precedent.

Separately, reports that the government is reviewing its telecom and broadcasting ordinances - a step that seems grossly overdue given the formation of Ofca two years by merging the old telecom and broadcast regulators.



Finally, China Mobile chooses MVNO partners

China Mobile, the latecomer to the MVNO party says it has chosen 17 MVNO partners and is awaiting approval from the MIIT.  After that it hopes to sign agreements with the MVNOs, China’s National Business Daily reports.

China Mobile is months behind rivals China Telecom and China Unicom, whose MVNO partners were issued licences in December. Both Telecom and Unicom say they expect trials to start in Q2, according to the NBD.

China Mobile won’t reveal the names of its MVNO partners, but one small Shanghai-listed telco, Dr Peng Group, said it had applied and was waiting for a response.

A China Mobile spokesperson told the NBD in an email: “We are very willing to cooperate with MVNOs, to launch richer business and services and to satisfy customer demand for personalised and differentiated apps.”