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Report From China: In Search Of The Chinese Cell-Phone/TV/Broadband Junkie

Yun is the Chinese-American CEO of Telegent Systems, a Silicon Valley startup whose chip for enabling mobile phones to pick up over-the-air TV signals will start appearing in handsets here next month. Right now though, he's more concerned with the cell phone that belongs to Reed Hundt, the former FCC chairman who sits on Telegent's board, and is running late for dinner because of a delayed flight from the States. Finally Yun gets through. Dinner is on, and so, presumably, is his ability to leverage some of Hundt's star power in the telecommunications world for his two-year-old company.

Yun's anxiety is understandable. He came to California in 1985 to go to grad school at Berkeley and has stayed there ever since. This is his third startup, and like lots of businesses with an eye toward China, it's after a slice of the country's 400 million cell-phone subscribers. By comparison, the United States has about half as many cell users. China Mobile, the country's state-owned telco, is the world's largest cellular carrier, with 260 million subscribers. The government operates three other carriers as well. Those are persuasive numbers.

There's money to be made in the hardware business here, in addition to the networking side. Most Chinese cell-talkers buy their phones outright and pay by the call, and handset makers have more leeway than in the West to add features to their phones instead of reselling products pre-configured by the carriers. Even laborers who can't afford a landline—not to mention China's fast growing middle and upper classes—are willing to shell out chunks of their salaries to go mobile. On the roadside in Beijing, my photographer and I spotted a street sweeper putting aside her broom to check her voice mail.

Venture capital-backed Telegent, which employs about 40 people in Silicon Valley and 10 in Shanghai, has spent the last couple of years designing a low-power chip that integrates a TV tuner, antenna, and signal-processing firmware on piece of silicon the size of a fingernail. The chip rolled off the assembly lines last month, and Yun says it'll start appearing in phones in a few weeks. The chip costs about $10, and Yun figures its capabilities—to let users watch TV on their cell phones without sapping their batteries too fast—could add $60 to the retail price of phones that include it.

The mobile market's promising here because of its potential to get millions of Chinese on the Internet. Over dinner (he finally made it) Hundt points out that unlike the United States, where most people get broadband access through their phone lines and TV cables, Chinese telecom doesn't work that way. Even though Shanghai has some cable modem subscribers, Hundt says, "for 90% of the country, it's mobile."

There's one thing that might derail the mobile/broadband/whiz-bang features party. A coming technical, and perhaps legal battle looms over a standard called OFDM—that's "orthogonal frequency division multiplexing" to the engineering crowd. It has to do with splitting broadband signals into narrower channels to get the huge amounts of data required by high-speed Web surfing and Internet video moving over cell networks' waves. The consensus view among engineers is the only way to get there is OFDM.

At issue, according to Hundt, is that Qualcomm, which holds a passel of patents on wireless technologies and is the world's No. 2 maker of mobile phone chips, maintains that OFDM is an extension of CDMA, its patented cell-phone network transmission technology. Intel and others say it's different. The dispute may be litigated, or it may fizzle, ending in cross-licensing of patents, says Hundt. The problem is, no one knows.

Beneath the covers, the battle to grab a piece of China's burgeoning mobile market is ridden with complexity.

For more on Aaron Ricadela's trip to China, see:

Friendship, Peace, Cooperation, Development

Sliced Duck And Sharp Views With Reed Hundt

And listen to this podcast: Special Report: Live From China

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