Foreign firms make inroads
By Chen Zhiming (China Daily)
Updated: 2004-02-25 13:52

Taking a wait-and-see approach may still be an appropriate action for foreign operators who want to make inroads into China's lucrative telecommunications market this year.

But slightly wedging in seems to have already become one of their strategies to take a bite out of the market.

Various signs already had it that foreign telecom operators were gradually working their way into the industry, despite a constant outcry for tighter controls from the Ministry of Information Industry (MII), the industry's watch-dog.

The latest approval for the establishment of a joint venture (JV) between China Unicom and SK Telecom in early February was music to the ears of foreign players trying to crack the world's most populous market.

The approval came almost one year after the two sides signed a co-operation pact in March 2003 to jointly provide value-added telecom service for China Unicom's CDMA (code division multiple access) subscribers.

According to the agreement, the registered capital for the JV is set to be US$6 million, with China Unicom taking 51 per cent of the total share with SK Telecom holding the remaining share.

A large display at the China International Telecom Equipment and Technology Exhibition, held at the China International Exhibition Centre in Beijing in November of last year. With its commitment to the WTO, China is set to fully lift its regional restrictions on value-added telecom services to foreign investors this year.[newsphoto]

"The Chinese telecom consumption market is expected to be more mature this year," Liu said.

He believes that telecom services such as wireless data and multiple media will see an explosive increase this year.

Analysts believe that the long- awaited nod from the MII will give SK Telecom a more effective way to participate in China's telecommunications market.

Fuelled by enormous market potential, many foreign telecom operators are longing to penetrate into the market, including Vodafone, AT&T, Japan Telecom and Hong Kong's PCCW and Hutchison Whampoa.

Japan Telecom Co Ltd announced in January that it has formed its first solely-owned subsidiary in China, Japan Telecom China Co Ltd.

Registered in Shanghai, the company has a total investment of US$500,000.

Company sources said that the firm mainly provides network solutions for both domestic and international enterprises.

Currently, those services are mainly for Japanese clients who have expanded their business to China.

Since 1996, Japan Telecom has established liaison offices in Hong Kong, Beijing and Shanghai.

It also inked related co-operative agreements with China Telecom and China Netcom to provide services for Japanese companies in China.

"We chose to locate the subsidiary in Shanghai mainly because we have most of our clients there," the company said in a statement.

According to the statement, the subsidiary will mainly serve their own customers instead of getting involved in telecom-related value-added services or other fundamental telecom services in China.

After the subsidiary's establishment, the company is also planning to set up a new subsidiary in Beijing though there is no set timetable for it, the statement said.

Japan Telecom is not alone.

A number of foreign telecom operators are adopting a wait-and-see attitude towards the domestic telecom market in order to seek the right time to get in, according to Chen Jinqiao, director of the China Academy of Telecommunications Research under the MII.

In line with China's commitment to World Trade Organization (WTO), China is to fully lift its regional restrictions on value-added telecom services to foreign investors this year.

For mobile voice and data businesses, foreign shares can take no more than 49 per cent in JVs without regional restrictions.

Meanwhile, foreign investors are allowed to set up JVs in Shanghai, Guangzhou and Beijing to deal in domestic and international fixed-line services with their shares at a maximum of 25 per cent.

"With the gradual lifting of restrictions for foreign involvement, foreign penetration in the telecom industry is expected to speed up," Chen predicted.

Sources from France Telecom said it is going to establish a research and development centre in Beijing this year, trying to tap the enormous telecom market and enhance technological innovation.

A company spokesman said that France Telecom Chairman and CEO Thierry Breton has shown strong personal interest in business in China, with the company already starting to recruit Chinese engineers and planning to employ more Chinese staff.

He emphasized that the company is very much interested in the development of China's Internet and 3G technologies.

And it is also going to seek partnerships with Chinese enterprises and universities.

France Telecom has already set up R&D centres in the Netherlands, the United States and Japan.

"Value-added telecom services will be the areas that will be most favoured by foreign telecom companies," said Zhou Guangbin, an official with the Telecommunications Policy Research Institute under the MII.

"However, a more sound environment characterized by transparent policies and a good legal environment is badly needed to attract more foreign telecom operators to China."

He also called for more detailed implementation methods outlined by the government on how to participate in China's telecom industry, instead of just a handful of policies.

"We will spare no efforts to form more laws and regulations to better boost the industry and build up a more sound telecom market environment this year," pledged Information Industry Minister Wang Xudong in January.

He said the country will stick to its WTO commitments and make policies more optimized and transparent, so as to attract more telecom-related operators and equipment providers to invest in China.

Another key move that should boost participation in Chinese markets by foreign telecom operators may lie in the rapid development of the industry.

Figures from the MII showed that the country's telecom industry generated a revenue of 461 billion yuan (US$55.5 billion) in 2003, up 13.9 per cent from the previous year.

Fixed asset investment last year reached 221.52 billion yuan (US$26.6 billion), up 8.6 per cent from a year earlier.

China had signed up a total of 268 million mobile subscribers and 263 fixed-line telephone users by the end of last year.

"The booming industry is likely to maintain its strong growth momentum this year," said Gao Shiji, deputy director of the National Development and Reform Commission's Institute of Economic Systems and Management.

Despite rosy prospects for the industry, some analysts have also pointed out that the country has not shaped up a sound competition, with the participation of only six major telecom operators in the domestic market.

"Also, the issuance of 3G licences will have an influence on the strategies of foreign telecom operators in China," Zhou said.

He expected that with the new round of WTO talks, some foreign companies expect that there may be some changes in terms of market access, licence issuing as well as business classifications.

Zhu pointed out that it still needs some time to see a real boom of foreign involvement in the domestic telecom market, as the world market hasn't fully gotten out of the bottom from its recession.

"That may lead to less capital being invested in the Chinese market." he said.