Red Hotzones In China
December 23, 2002
Gemtek Systems is helping China Mobile make its big push into the Wi-Fi hotspot market in the world's most populous country.
Some may think of China as a communist backwater full of techno-peasants, but here's the truth: there are over 200 million mobile wireless subscribers in China. Now the country is going full-speed ahead on providing broadband wireless service in hundreds of Wi-Fi hotzones.
China Mobile, one of four former government-owned PTTs (Post, Telephone and Telegraph companies) now competing for business in the new Red capitalist China, recently announced the first of a series of hotzone projects that will eventually blanket the country.
The initiative could be a portent of trends in markets closer to home, with mobile carriers finally committing unreservedly to the Wi-Fi hotspot market -- something few have done. One of China Mobile's biggest Wi-Fi equipment suppliers, Gemtek Systems, a company based in Amsterdam in the Netherlands, but with a Taiwanese heritage, believes this could be the significance of the Chinese initiative.
"Wi-Fi is here to stay," says Gemtek CEO Hans van der Hoek. "We've been talking to mobile operators and what we're hearing from all of them is that it's not a question anymore of 3G or Wi-Fi, but of how are we going to integrate them?"
Wi-Fi and 3G technologies are "perfectly complementary," van der Hoek says, adding that ntegrating Wi-Fi and GPRS networks is already on China Telecom's roadmap. Gemtek is developing combo GPRS-Wi-Fi client cards and gateway devices to make this possible. Subscribers will eventually be able to roam from one network to the other seamlessly.
This is a vision that Sprint and T-Mobile have both talked about, of course, but one wonders if the single-minded Chinese might not get there first.
Gemtek is a company dedicated to providing turnkey public access Wi-Fi systems. It's targeting all kinds of players -- incumbents, start-up WISPs and mobile carriers -- in markets around the world. Van der Hoek makes no bones about the fact that he sees mobile carriers as the most likely to succeed in the hotspot biz.
"They're the best positioned to be winners," he says. "They have the knowledge, the user base, the wide area backbone, and only they can provide ubiquitous access [by integrating Wi-Fi and 3G nets]."
The only thing holding them back: "they don't seem to move very fast," van der Hoek says. This is partly because they have some difficulty right now going back to investors for more money to fund Wi-Fi projects when they have recently invested so much in 3G licenses and technology.
In many markets, they're preoccupied with competing on other technological fronts such as multimedia and SMS. And notwithstanding the Starbucks initiative that T-Mobile inherited when it acquired MobileStar's assets, no major U.S. mobile carrier is making a real push on the Wi-Fi front yet.
"What T-Mobile is doing is so small and low-key that it's not yet a reason for sleepless nights at its competitors," van der Hoek says. "That's what I'm getting back from mobile operators."
None of these factors applies in the green-field Chinese market, however. China Mobile, the largest of the former PTTs, is looking to make a pre-emptive strike against China Telecom, its soon-to-be competitor in the GSM/GPRS services market.
"China Telecom will start rolling out its GSM network in the first six months of 2003," van der Hoek explains. "By the time it's up and running, China Mobile wants to be able to offer GSM plus high-speed data services."
He admits that Gemtek itself was curious about the market demand for such services in the country. China Mobile serves thousands of business and government customers, many of whom travel and carry laptops, van der Hoek says. The company does offer GPRS-based data services, but had come to the conclusion that GPRS was too difficult or slow for these customers.
China Mobile, which is 40-percent government owned, is a huge, nationwide corporation with 31 regional operating companies. Gemtek had to jump through hoops to get accepted at the headquarters level as an approved supplier to the regional companies.The process was made more difficult by the fact that competitor Ericsson, a Swedish company, had a hand in developing specifications for the Wi-Fi projects. Another major competitor, Huawei Technologies Co. Ltd., a domestic Chinese outfit now making inroads in other markets, including the U.S., also had an inside track.
But Gemtek prevailed. It was a big winner when Guangdong Mobile, the operating company in the densely-populated and business-oriented mainland province nearest Hong Kong, asked for bids for its first Wi-Fi hotzone projects.
Guangdong Mobile is moving forward on 10 city-area hotzone projects. Gemtek won exclusive contracts to provide network equipment in four -- Guangzhou, Shatao, ChangJiang and JiangMen. They account for 30 to 40 percent of the money on the table. The other projects were won by Nokia and Cisco.
Gemtek attributes its success with China Mobile -- its first major contracts since being spun off as a separate entity in the summer by Taiwanese parent Gemtek Technology Co. Ltd. -- largely to the fact that it builds "carrier class" Wi-Fi network equipment.
Now, to makers and consumers of telco network equipment, the notion that license-free 2.4 GHz gear could be carrier class is probably risible. However,van der Hoek insists the Gemtek claim is based on more than marketing hype.
First of all, he points out, the company is focused exclusively on and makes equipment exclusively for the public access Wi-Fi market. It makes everything a service provider needs to set up a network.
Guangdong Mobile is purchasing indoor and outdoor access points, access controllers that provide smart network functions, plus power-over-Ethernet (PoE) gear and network management services and systems.
At the simplest level its equipment is differentiated from mere "enterprise class" equipment by being built theft and tamper proof -- which is logical since hotspot access points will often be placed in vulnerable positions.
It also has industrial-grade security built in. This is a difficult achievement in an environment where you want everybody to be able to access the network but still somehow keep transmissions from being intercepted. Competitors, of course, might argue that their equipment is just as much carrier grade.
"We believe that whether the operator is an incumbent or a start-up WISP, to be successful, wireless ISPs will have to offer carrier-grade service," van der Hoek says.
"Why? Because this is a service where people will have plenty of suppliers from which to choose. You don't need a license to offer this service. Anyone can become a hotspot service provider. So the moment the service is not available or there's a glitch, that's the moment you lose subscribers."
China Mobile doesn't have that concern to the degree a service provider might in some large U.S. cities, but there is other Wi-Fi hotspot activity in China. Starbucks has a location, for example. Plus there are hotspot start-ups, just as there are in other markets.
"But this is the first roll-out with a company with deep pockets that is very determined and national in scope," van der Hoek notes.
The pace of the roll-out is not known even to Gemtek: "China Mobile likes to play its cards close to the vest." The four projects will involve placement of hundreds, possibly thousands, of access points in hotels and office buildings. The only thing Gemtek can or will say for sure is that about 35 access points will be deployed by the end of 2002.
How much money is the business worth? Gemtek isn't saying. But it does say that based on its success with Guangdong Mobile, it has a reasonable chance of succeeding with the other 30 regional China Mobile operating companies, many of which are gearing up to begin roll-outs in the first quarter of 2003.
Ultimately China Mobile will be worth "millions and millions of dollars" in revenues, the company says. So far China Mobile is Gemtek's only major contract, but it's close on others and hopes to be able to announce deals in Europe and Asia early in the new year.
The U.S. market, meanwhile, is "quiet," van der Hoek says. Activity in far-away China is not likely to stir things up here, he concedes, but at least Gemtek is on the map in the Wi-Fi hotspot market now...and if far-away activity in China is some kind of portent, that's a good position in which to be.