Value-added service

Value-added service is one area that China has committed to opening up most in telecom service areas. At present, foreign investors can form joint ventures without regional restrictions, as long as they hold no more than a 50 per cent stake. It is also because value-added service has a low entry barrier and big room for development in China.

However, foreign investors are not very active in this business and most of them adopt a wait-and-see attitude. The reasons are: they can't get an absolute majority in a joint venture of value-added services; and the market consolidation is almost completed.

One additional factor is that there are about 10,000 telecom value-added service providers, but they have to rely on the six national basic telecom service operators. So foreign investors do not want to accept a situation that it is working with small and medium firms but without an absolute say, but if they want to work with the six operators, they must have the financial and technological strengths to attract the Chinese companies and also consider their needs.

The best choice for foreign investors is to work with the operators and a secondary consideration is influential large State-owned enterprises.

By September, a total of 29 foreign companies applied to establish joint ventures in value-added services. With continued opening, foreign businesses can also enter the market through acquisitions.

Among those applications, UNISK (Beijing) Information Technology Co Ltd is the most noteworthy, the first value-added service joint venture between a Chinese basic service operator and a foreign investor.

The value-added telecom service has been growing very fast, but its share in the whole telecom industry is still quite small and far from a backbone of the industry. At the same time, the variety, content, quality, and billing systems are also quite limited, so this business is still at a primitive stage of its development.

Besides establishing joint ventures, foreign businesses can also invest in Chinese telecom value-added service providers, when they make overseas initial public offerings (IPOs), such as the Hong Kong-listed instant messaging provider Tencent and the NASDAQ-listed online game operator The9 Ltd.

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