Nokia to begin making CDMA handsets in China

Nokia plans to begin production of CDMA (Code Division Multiple Access) cellular phones in China, the company said Monday. The announcement comes as the country's second largest cell phone operator, China United Telecommunications (China Unicom), begins a three-month trial of its recently completed national CDMA2000 1X network.

While the announcement signals a clear change in Nokia's product lineup, the company did not specify when production of CDMA phones would begin, saying it was awaiting approval from the Chinese government to make CDMA handsets. The phones will be based on CDMA chip sets made by Nokia, it said.

Nokia has seen domestic handset makers cut into its share of China's rapidly growing cell phone market. It is looking to CDMA phones as a way to broaden its reach into the market, according to a company statement. Worldwide, Nokia sells handsets that support GSM (Global System for Mobile Communications) and GPRS (General Packet Radio Service) mobile networks. The company also makes a handset that supports the WCDMA (Wideband CDMA) third-generation mobile standard.

"[Nokia is] clearly losing market share on the GSM side [in China], both to the local players and to Japanese handset makers," said Ted Dean , managing director of market research firm BDA China. "There are just more companies making handsets now compared to a year ago."

Domestic handset makers have been successful in China for several reasons, including strong distribution channels and innovative handset design, Dean said. As an example, he cited TCL Mobile Communication Co., China's largest handset maker, which produces a clamshell-type phone that has a diamond set into the outside of the top cover.

"They're giving consumers more variety," Dean said.

But while Chinese handset makers may have grabbed a piece of the Chinese handset market, they are not close to overtaking their foreign rivals, Dean said. "Motorola and Nokia are still by far the No. 1 and No. 2 players in the market," he said.

By producing CDMA handsets, Nokia can not only tap into demand from Chinese CDMA users, but it can also push into markets such as South Korea and the U.S., where CDMA is more prevalent than in China, Dean said.

"[CDMA is] a growing piece of the handset market that they want to be a part of," Dean said.

China has one national CDMA network, launched in January 2002 and operated by China Unicom. That service got off to a slow start, falling short of initial subscriber targets, and construction of China Unicom's 2.5G (advanced second-generation) CDMA2000 1X network, originally expected to be completed at the end of 2002, was delayed by nearly three months.

China Unicom announced that construction of the CDMA2000 1X had been completed on March 28, saying it would begin a three-month trial of the new service, called U-Max. But questions remain as to whether the new service will be a success.

"It all comes down to implementation and Unicom's ability to deliver the goods when it comes to new services," Dean said. "Unicom doesn't have a good track record of rolling out new services."