US chip makers are raising the stakes in a technology trade dispute with Beijing over Wi-Fi, warning that they would rather withhold business than accept China's regulations, according to executives.
The dispute, which has been brewing for months, centers on a requirement that short-range wireless computer networks known as Wi-Fi incorporate a Chinese-designed data encryption technology. However, only 24 Chinese companies have access to the technology, requiring foreign Wi-Fi chipmakers to share their chip designs with Chinese partners.
Chip makers including Broadcom, one of the largest suppliers of wireless networking chips, say the rules imperil the intellectual property of foreign suppliers by requiring them to share closely guarded design information with Chinese firms.
"We're not playing their game," said Alan "Lanny" Ross, the chief executive of Broadcom. "To the extent that the only way to enter the Chinese market is using their encryption scheme, we are not committed to doing that today."
Dennis Eaton, who heads the trade group Wi-Fi Alliance, said if some compromise were not reached before the rules took effect in June, Wi-Fi chip suppliers would consider suspending sales of Wi-Fi chips to China rather than comply.
"I think the sentiment would be right now that the IP [intellectual property] risk at this point is just too great, I believe, for most companies to jump in and say they're going to do business under these conditions," Eaton said.
Sales of Wi-Fi equipment worldwide reached over $2 billion last year, and China is seen as one of the fastest-growing markets for the technology. China's demand for Wi-Fi equipment remains relatively small, only about $17 million in 2002, but sales are expected to jump to $500 million in 2007, according to the Wi-Fi Alliance.
Dialogue underway
According to the Wi-Fi Alliance, China has rejected the security system that is included in the Wi-Fi standard in favor of its own.
China, however, has kept most of the technological details of its security technology, called Wired Authentication and Privacy Infrastructure (WAPI), under wraps. The technology describes how data transmitted over wireless networks should be encrypted to prevent unauthorized monitoring.
Analysts believe that China may have rejected Wi-Fi's own security technology in favor of a proprietary system in order to keep control over wireless communications in the country, or to promote local business by requiring foreign suppliers to work with Chinese partners.
Eaton said he was hopeful that a compromise could be reached with Beijing. Discussions, he said, continue between Chinese government officials and senior electronics company executives. There are also "informal dialogues" within the US government about the issue, he said.
Broadcom's Ross, in a recent interview with Reuters, also said an accommodation could potentially be reached if Broadcom were to provide its chips as part of a wireless system assembled by a Chinese partner.
For that to work, Broadcom would have to maintain complete control over its design secrets, he said.
"We're not going to lose our technological edge through the risky disclosure of our IP," Ross said. "We're not going to expose our technology in China until we comprehend clearly what this means."
