Update May 5, 2010 > Read Here. Update – March 8, 2010: There were several reasons why WiFi on mobile calling devices (phones) was initially banned in China, and it’s also fairly clear why a compromise has been reached (April 2009 – China’s MIIT authorized a WAPI/WiFi stack), although it’s not definitive that Apple will go along with the compromise.

Carriers have been petrified over the proliferation of voice-over-Internet protocol (VoIP) applications now finding their way on to smartphones. WiFi + VoIP could eventually allow consumers to make their phone calls away from the carriers’ cellular networks. As VoIP calling grows, so too does carriers’ greatest fear … becoming “dumb pipes” – just antiquated (“dumb”) cellular transmission networks (“pipes”) that consumers no longer use.

Another reason for the WiFi ban was China’s support for their competing standard – Wireless LAN authentication and privacy infrastructure (WAPI). Naturally China would prefer that consumers utilize the “indigenously innovated” (China built) WAPI versus WiFi (802.11).

Why did China authorize the WAPI/WiFi stack? Prior to April of 2009, only WAPI was allowed on mobile phones. Yet there are not nearly as many WAPI hotspots in China as there are WiFi hotspots (in theory WiFi is just for computer usage). Moreover, there were very few mobile phones being manufactured in China with WAPI capability. This led to a serious problem for Chinese authorities. Consumers were voting with their pocketbooks and buying up millions of grey-market smartphones (including iPhones) with WiFi. Naturally these phones were accessing the tens of thousands of WiFi hotspots across China. Very cool for consumers, particularly since there are virtually no unlimited data plans in China and consumers, who’ve used up their monthly data-surfing allocation, would often switch away from the carriers’ networks in favor of WiFi. So … unless China instituted a massive crackdown on the illicit sales of grey-market handsets (not likely to happen), the proliferation of WiFi-enabled smartphones would continue and “WAPI only” phone sales would suffer. The only way to stem the tide of illicit sales of “WiFi only” handsets was to come up with a King Solomon’s compromise … allow both WAPI and WiFi to be stacked together on smartphones. This solves multiple problems … it allows China to obtain their WAPI royalties (declare victory) and gives consumers what they want, official WiFi-enabled smartphones that can connect to ubiquitous WiFi hotspots or WAPI as coverage (hotspots) expands.

Update – April 24, 2009: via  INTERFAX-CHINA Beijing. April 24, 2009: The Ministry of Industry and Information Technology (MIIT) has allowed mobile phone manufacturers to integrate China’s homegrown WAPI (WLAN Authentication and Privacy Infrastructure) standard into their handsets, a source at a domestic handset manufacturer told Interfax on April 22, 2009.

The source, who asked to not be identified, said that MIIT told a number of handset manufacturers on April 17 that both 2G and 3G handsets are now allowed to have integrated WAPI technology to allow users to access wireless broadband. Read details > HERE

WiFi on iPhone in China? Maybe

Will an official iPhone in China come with WiFi? If the Ministry of Industry and Information Technology (MIIT) bends to the will of consumers and China Unicom, then we may get our wish. But alas, don’t underestimate China’s tendency to make non-economic (political) decisions that stifle progress in the interest of maintaining control (“we’re watching you”) and promoting “ingeniously innovated” technologies.

Is there a chance for Wifi? Yes, but in the near-term (2009) it’s less than 50/50 odds. I’d place the Vegas line at 70/30 against. But hey, 30% is still a chance. There are many who might say that 30% odds for an iPhone with WiFi is optimistic. But China’s Ministry of Industry and Information Technology (MIIT) gave us reason to be hopeful. On March 18, 2009 Marbridge Consulting reported that:

“A source close to the Ministry of Industry and Information Technology (MIIT) says the ban on Wi-Fi enabled mobile handsets might be lifted shortly, with the condition that such handsets were also compatible with the Chinese-developed WAPI wireless networking standard.”

One important side note: For many years now, China ministry officials told wireless consumers that WiFi would NOT be allowed on mobile phones. The rationale for this prohibition was the fear that consumers might be tempted to illegally load VoIP apps and make calls over the Net (Skype, et. al.). China felt this would undermine carriers’ interests.

What was the result of this “no WiFi for handsets” policy? A flourishing black market in WiFi enabled mobile phones, including iPhone. There is also a major jail breaking business in China. Entrepreneurs will sell you a WiFi Smartphone and load it with a VoIP app that allows you to bypass the carrier’s network.

The genie is now out of the bottle. China’s MIIT is not blind to this thriving black market in Wifi handsets. Telecom insiders in China have estimated that a full 50% of mobile phones sold in China are traded through these black or grey market channels. How do you stop this? Make WiFi on mobile handsets legal albeit the handset may have to comply with China’s WAPI.

Let’s hope the MIIT makes the right call and approves WiFi enabled handsets. The consumers will be the winners and new e-commerce opportunities will arise. WiFi will also attract new mobile subscribers and will raise carriers’ average revenues per user (ARPU). That’s called a “win, win, win” – for consumers, for carriers, and for China.

Here’s the full backstory for those who care:

In 2003, the Chinese government released its proprietary security encryption standard for WiFi, known as WAPI (Wireless LAN Authentication and Privacy Infrastructure). China’s ministries then said that any foreign company that wanted to sell Wi-Fi gear in China would have to include WAPI in their products. Naturally, in order to include WAPI in products (e.g. laptops and base stations), foreign manufacturers would have to license the technology though agreements with specially designated Chinese vendors (there were initially 24 such approved vendors).

Many nations, including the USA, objected strongly to the WAPI standard, and in 2004 the Chinese temporarily relented and backed off on the mandate. But the Chinese would not give up easily. Chinese engineers and government officials wanted to see their own WAPI standard adopted as the official International Organization for Standardization (ISO) successor to WiFi encryption. The Chinese pushed hard for WAPI, but in 2006 the Geneva based ISO voted in favor of a rival technology – 802.11i. WAPI was supported by just 32 percent of ISO members. In the same 2006 voting session, 802.11i was backed by 89 percent of those who voted.

What was the key reason for WAPI’s rejection? Concerns over WAPI secrecy, namely the use of an undisclosed algorithm in the WAPI protocol. This set off rumors (no physical firmware knowledge) and charges that WAPI may have “backdoors” that allow China’s Great Firewall (60,000 employees who monitor the Net) to snoop on WiFi users. To this day, China refuses to allow a full inspection of the WAPI standard.

http://www.dailywireless.org/2004/01/30/chinese-security-boycott/

“I have assumed all along, and see no reason to doubt, that the WAPI standard contains backdoor technology that will allow China to monitor any communications sent over ‘secure’ links. Given the propensity for Chinese government monitoring of general Internet activity specifically, and warnings from security firms about purchasing technology designed in China that could contain embedded corporate espionage tools, this isn’t so much speculation as a high probability.”

Still more background:

Excerpt from Telecommunications Industry Association (TIA) December 12, 2008 letter to the Executive Secretary, US Trade Policy Staff Committee:

Issue 4: Technical Barrier to Trade – Wireless Authentication and Privacy Infrastructure (WAPI).

Impact: TIA understands that MIIT plans to issue a regulation allowing handset manufacturers to seek type approval for WiFi-enabled handsets. However, TIA also understands that the MIIT regulation would require handset manufactures to use WAPI and allow them to use WPA2. It is unclear why MIIT would require WAPI when an international standard exists for WiFi (WPA2, which is used internationally as the encryption method in IEEE 802.11i).

Recommendation: TIA seeks to understand what the regulatory justification is for requiring WAPI to be used in order for manufacturers to get type approval for WiFi- enabled handsets. Further, TIA would urge USTR to remind the Chinese government of its 2004 JCCT commitment not to mandate WAPI, and would ask that USTR press MIIT to remove WAPI as a condition of getting type approval for WiFi-enabled handsets in China.

* * * *

See also the following excerpts from a United States Information Technology Office (USITO) report on WiFi and WAPI (Apple and many other tech/telecom companies are members of USITO)…

USITO Special Report: China’s WiFi-based “WirelessCity” project kicks off

December 26, 2008

Recently the Chinese government has been sending mixed signals with regards to Wi-Fi. The industry regulator, MII has long harbored hostility toward U.S.-owned technology, especially Wi-Fi. For instance, it reiterated last year that mobile phones with Wi-Fi enabled-functions are prohibited to sell in China, with no sign that China will change its policy in the future. On the other hand, Wi-Fi technology is growingly popular within the Chinese IT industry: more domestic computer vendors have begun to adopt Wi-Fi, almost 100% of laptops made by domestic companies such as, Lenovo, Haier or Hasee, exclusively use Wi-Fi technology. Most importantly, governments at local levels, out of MII’s jurisdiction, are deploying Wi-Fi at an unprecedented large scale – as we read from last week’s news reports in China’s technology media.

According to the 1/17/2008 headline story in tech.sina.com.cn, the launching ceremony of the “Shanghai Jiading Wireless City” program, China’s first WirelessCity project, was held in Shanghai on December 28, 2007. Shortly afterwards, the local government signed a number of deals with the vendors for relevant Wi-Fi equipment. This signifies the official kick-off of the “Shanghai Wireless City” project. An official press release stated that CECT-Chinacomm Communication Co. will be responsible for implementing the program, and the first phase of the project will build 200-300 Wi-Fi base stations. Members click here for the full text

Special Report: Extensive Wi-Fi Deployment by Chinese Carriers

On March 10, 2008, official sources from China Telecom, China’s largest fixed-line carrier, stated the company will accelerate its Wi-Fi deployment, and roll out large-scale wireless networks in Southern China’s 21 provinces.

China Telecom’s statement said the deployment of the Wi-Fi network will enhance customer loyalty to China Telecom and boost the competitiveness of its mobile service. The company’s 21 provincial subsidiary carriers will focus on building and optimizing their Wi-Fi networks in 2008, in an effort to secure its earnings amid the sharp revenue decline in the landline businesses.

While the telecom carriers are extending their Wi-Fi deployment, China’s WAPI (Wireless Authentication and Privacy Infrastructure) camp made another round of proposals to top Chinese authorities during the National People’s Congress (NPC) meetings, which are still taking place in Beijing. A representative from the Xi’an Electronics University (Xidian), the initiator and patent holder of WAPI, submitted a proposal to NPC asking for reinforced government measures to promote mandatory WAPI products in government agencies and state-owned enterprises. The proposal said that China’s domestic market is currently dominated by foreign wireless LAN products, and that reliance on them is harmful to national security. The WAPI standard should at least be used in the country’s important industries, such as energy, transportation, finance, aerospace and pharmaceutical sectors. Xinhuanet.com, 3/14/2008

USITO Notes: Chinese telecom carriers prefer Wi-Fi to WAPI, although the WAPI camp keeps lobbying the government and industry to promote their products. Currently, most laptops in China support Wi-Fi; it is very rare to find any laptops with a wireless LAN function supporting WAPI. At the city level, governments are making efforts to improve their communications infrastructure by building Wi-Fi networks, like Shanghai and Beijing.

As covered in recent USITO weekly newsletters, Shanghai Municipal Government has announced plans to establish a citywide wireless broadband network adopting Wi-Fi by 2010. The city will build trial networks in several districts this year and will explore a new business model for the wireless city. On March 5, Shanghai Telecom and the Shanghai Municipal Informatization Commission signed agreements for the construction of the wireless network, which will allow anyone to access broadband at anytime from anywhere in the city. At present, people can access Wi-Fi networks in Jiading District of Shanghai. In Beijing, Wi-Fi-based wireless networks are now available in most Olympic facilities and popular scenic spots. Wi-Fi hotspots are also widespread in the city’s business areas, transportation stations, hotels and restaurants.

However, WAPI still has its advantages, especially considering China’s growing national concern for information security. This issue has oftentimes been raised by the WAPI camp, though strictly speaking it remains a question whether WAPI could sufficiently prove its security feature. For the time being, the security issue has been a significant disadvantage of WLAN compared with traditional landline networks, and in China there was once widespread doubt over Wi-Fi‘s security capability.

No feedback to the Xidian proposal is yet available from the NPC authorities, but Chinese industry experts widely hold the view that the submitted proposal will once again receive no support, just as it failed to do in several submissions in recent years. USITO will continue to track the issue, and interested members should contact us for more details.

MIIT to Allow WiFi Phones?

Last week Chinese technology media widely quoted an MIIT official saying that “mobile phones with WiFi functions will soon be allowed to debut on the Chinese mainland as early as late this year“. The quoted official was said to be Xiao Li, duputy chief with the Telecommunications Metrology Center under MIIT.

According to Xiao li, the WiFi-enabled mobile phones will be approved for sale by competent Chinese authorities at the end of this year or the beginning of next year. He estimated that the output of WiFi phones is set to hit 200 million to 300 million units in 2009 in China, half of which will be exported. But Mr. Xiao added that allowing WiFi-enabled phones doesn’t mean allowing Internet phone services such as VoIP, which was regarded as a major threat to the traditional voice-call telecom carriers.

WiFi phones have been restricted for several years in China’s domestic market. All handsets sold in the legal mobile phone channels are banned from carrying built-in WiFi chips although the feature has been widely available in most cell phones across the world. Shanghai Daily , 10/14/2008

USITO Notes: Despite this exciting report, we doubt the whole thing is at rumor base, and are yet to see any positive signs of having wifi phones available in Chinese official channels in the near term. First of all, we saw that Xiao Li is in strict sense not an MIIT official; his lab is a profit-making enterprise affiliated to the MIIT, with primary mandate being profitable (though not officially stated). From his own perspective, he would like to encourage the government loosen the control on WiFi phones, as this would mean better business opportunities. His lab, the Telecommunications Metrology Center, is China’s first agency authorized (in 2005) to conduct WiFi test and certification services. Now China has the second such lab, the Shanghai Tongxin Communications Technology Co., Ltd, authorized on October 13, 2008 to conduct similar certification services following Xiao Li’s lab.

The government repeatedly told the subscribers that WiFi mobile phones can’t be allowed as it would violate carriers’ interests when WiFi is “illegally” used for VoIP services and the like. However, the interests of Chinese mobile phone subscribers are rarely addressed. The scenario helps China’s “black market” grow rampant, as experts believe half (50%) of mobile phones sold in China are traded through illegal channels at the current stage.

Other than the frustrating mobile phone sector, WiFi has been largely adopted in China’s cities. In late 2007 Shanghai government kicked off the “Shanghai Jiading Wireless City” program, China ‘s first Wireless City project. Beijing, the 2008 host cities, began building WiFi spots several years ago and WiFi signals now cover all downtown areas (within three ring road). According to a CCID report, by 2012, WiFi hot spots in China will reach over 38,000 from 10,000 now.

Tags: Apple, China, China Unicom, iPhone, Li Yizhong, MIIT, WAPI, WiFi, wireless LAN authentication and privacy infrastructure (WAPI)