Telecom firms get green light for China trade

Telecommunications firms and Internet companies will finally be able to scale the Great Wall into China's lucrative markets, following a recent sweeping trade deal.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
Telecommunications firms and Internet companies will finally be able to scale the Great Wall into China's lucrative markets, following a sweeping trade deal signed today.

Following tense negotiations between U.S. and Chinese officials, China's entry into the World Trade Organization (WTO) has finally been cleared. This agreement will allow Internet, telecommunications and other firms greater access to markets, officials said.

"This is certainly good news for all of us in telecommunications," said James Shen, CEO of NeTrue Communications which provides Internet telephony products to China's largest telephone company. "The way we describe this market is that every year, China creates the equivalent of another Bell system, or another Canadian-sized market."

Over the years, U.S. Internet and telecommunications firms--such as Sprint, Bell Canada and others--have repeatedly tried to make investments in China, but have been stymied by unpredictable regulatory policies.

"An agreement of this sort…can help to anchor the relationship between the United States and China in a most fundamental way," U.S. Trade Representative Charlene Barshefsky said at a press conference.

Today's agreement is still dependent on other WTO-member countries negotiating their own deals with China. The WTO is a group of 135 countries that are dedicated to liberalizing international trade policies.

Looking forward
China has banned foreign Net and telecommunications firms from doing business in the country for years, citing rules against foreign ownership of service and infrastructure companies. Equipment manufacturers like Ericsson, however, face fewer restrictions and have seen their business in the region boom.

Network companies such as Sprint and Bell Canada have tried to set up somewhat back-door joint ventures in an attempt to establish an early presence in the market. Chinese leadership, however, has cracked down on these types of deals in recent months. Other companies have avoided the market altogether.

Most big telecommunication companies were optimistic about the new trade deal.

"At least this will give us a clearer timeline on how we can enter the market," said one U.S. telecommunications executive, who asked not to be named. "Now at least we can start to think seriously about entering the market," the executive added.

A Sprint spokesman said the company had not yet reviewed the details of the agreement. The long distance firm, currently waiting approval for its merger with MCI WorldCom, had tried to establish a presence in China in the past.

The pact will allow U.S.-based and other foreign companies to take a 49 percent stake in telecommunications service companies, and raise that to a 50 percent stake in two years. The terms mark an improvement from earlier attempts at cutting a trade deal previously this year.

Barshefsky said the majority ownership rights are a "significant issue," but that the compromise marks a breakthrough in terms of allowing U.S. companies into the Chinese market much earlier.

"We tried to balance a particular sensitivity of China with the absolute commercial interests of the United States," she said. "This [timetable] is very significant and unprecedented."

Analysts noted that the Chinese market could be particularly ripe for mobile phone companies and for networking equipment firms like Cisco Systems and Lucent Technologies that already have established a presence in the country.

"The biggest opportunity will be wireless," said Brownlee Thomas, senior industry analyst with the Giga Information Group. "That's the easiest to install."

Millions of people in China already use cell phones that support GSM mobile technology. Yet firms have recently indicated that they would consider introducing Qualcomm's CDMA technology in phones sold, she noted.

The deal also comes as welcome news for Internet content companies like Yahoo and America Online, which have recently established a local presence in China. Those investments had recently been put at risk when Chinese regulators began to scrutinize foreign Net ownership deals.

"Making the Internet issues clear and secure were a top priority for us," Barshefsky said.

Chinese firms today also welcomed the news. Shares of China.com, a provider of Chinese-language Internet services, rose nearly 75 percent after the agreement was announced. AOL owns a 10 percent stake in the Net firm.

China's Internet market is growing quickly, although very few people own personal computers. The number of people who subscribe to Internet services doubled from 2 million to 4 million in the first half of 1999, according to officials.

The telecommunications market is also growing quickly, following a recent round of deregulation that opened the telephone markets to some competition. About 12 percent of the country's population--roughly 144 million people--will own a phone by the end of this year, officials recently said.

The mobile phone market is also growing rapidly, from about 25 million subscribers last year to 30 million at the end of 1999, according to government figures. The country has already proved to be the leading overseas market for Ericsson, a leading mobile phone manufacturer.