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Landmark Sino-US Telecom Deal Deserves a Thumbs-up
After a see-sawing seven years of hard negotiations with the domestic telecom sector, AT&T, the largest telecom operator in the United States, finally got the official passport into China's lucrative but tightly-controlled telecom market.
However, when all the hype and pomp is put to rest, the question remains: how far can this remarkable joint business boost AT&T's bottom line in China? And how much access can AT&T expect?
Anyhow, AT&T representatives were upbeat.
The joint venture is to start to provide broadband Internet services to business players in Pudong in mid-2001. Major clients are likely to be multinational firms and local banks. Pudong now hosts over 90 multinational businesses including GM, CitiBank, NEC, Alcatel, Intel, IBM and Sony.
"Pudong has been the business focus in Shanghai, there are a significant number of multinational firms here. The market potential for profit is huge,'' said John Haigh, president of the International Ventures Organization with AT&T.
Haigh told Business Weekly that AT&T expects to turn profits with the venture in the next two years, but refused to elaborate on the vision.
However, it may be a tall order. Analysts say AT&T may still face stumbling blocks to its business expansion in China. Sources close to the deal said AT&T plans to break through the geographic limit set by the local government who have remained cautious on the unprecedented deal.
AT&T and its domestic partners say the Internet is a seamless service business model and that it would extend beyond Pudong when the time is right. But details on the strategy were declined.
"Communication has no limitation. The joint venture can extend its operation through Shanghai Telecom in the future,'' said Cheng Xiyuan, general manager of Shanghai Telecom, whose company owns a 60 per cent market share of the joint venture.
Already, operation was very vague as to the definition of broadband services.
"For example, China did not list Web hosting, voice IP (Internet protocol) service and call centres as value-added telecom services, which would cut the expansion of AT&T,'' said a local Internet watcher.
Domestic telecom operators, meanwhile, are not expected to stay on the sidelines.
China Netcom, China Unicom and Jitong, the country's new telecom comers, are to be licensed to access broader business portfolios in the coming years.
"Many Chinese telecom operators have the potential to join the foray,'' Haigh said.
AT&T's global rivals may also use China's imminent entry into the WTO as a golden opportunity to penetrate China's vast market.
"WTO entry will be a strong boost as it can commit China to global business rules with a promise of foreign competition in the telecom market,'' said Gordon Orr, managing director of McKinsey & Company's Greater China operations.
The Central Government has promised to open up the telecom service market afterr WTO entry.
John Huang, a partner of Shanghai-based AllBright Law Office, said a US$700 billion investment is needed in the telecom market including basic and value-added segments. "China alone cannot foot the investment,'' Huang said.
However, the country is just taking its first baby steps in introducing foreign investment into the telecom pipe. Issues about the rule of the market, the business scope and business models take time to resolve, analysts said.
Dissent on access conditions overshadowed the talks of AT&T's joint venture over the last seven years.
"It was a difficult process to go through,'' Haigh said, who had been deeply involved in the process.
But the president said he has left the door open for future buying out of market shares from local partners in the joint venture.
"We should follow the legal framework. And after China joins the WTO, we can expect more expansion,'' he said.
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