AT&T Breaks Through China's Great Wall

Communications Today, Dec 6, 2000

By Rodney L. Pringle, rpringle@phillips.com

AT&T [T] will become the first foreign company officially to be allowed to offer telecom services in China, breaking down a decades-old barrier to foreign carriers.

The U.S. long-distance carrier signed agreements yesterday with Shanghai Telecom, a subsidiary of China Telecom, and Shanghai Information Investment Inc. to provide broadband IP services to business customers in Shanghai.

The deal plants a seed for AT&T in the world's largest untapped telecom market. The company's $25 million investment is a mere pittance compared to the opportunities it hopes to open up down the road.

"There is no way that you can look at this and see it is a negative thing," said Dan McBride, senior analyst for H&R Block Financial Advisors in Detroit. "[AT&T] has put a line in the water and is going fishing, but whether they land anything significant probably won't be seen until three to six years from now."

The joint venture, called Shanghai Symphony Telecom Co., took seven years to negotiate. Executives from the three companies hailed the agreement as a sign of China's willingness to fulfill its promise to liberalize the telecom sector, which has been off-limits to foreign investors.

"The formation of this joint venture symbolizes the initiation of the open door policy in China's telecom industry," said Cheng Xiyuan, president of Shanghai Telecom.

John Haigh, president of AT&T's International Ventures Organization, said his company is honored to be the first foreign carrier to launch a telecom service joint venture in China.

Under the deal, Shanghai Telecom will own a 60 percent stake in the venture, while AT&T will own 25 percent and Shanghai Information 15 percent. The new company's license is restricted to Pudong, the Shanghai area developed in recent years by the Chinese government as a showcase financial and business center.

AT&T executives said they planned to market the kind of high-speed data services permitted under the deal to both multinationals and Chinese companies in Pudong.

The AT&T deal follows the Chinese government's banning in 1998 of socalled "Chinese-Chinese-foreign" investment deals, under which foreign carriers used legal loopholes to take equity stakes in local telecom companies. More than 40 foreign companies had spent $1.4 billion in agreements with China Unicom, the country's second carrier, before the government forced them to unwind the deals.

The AT&T joint venture has been granted an exemption from the present rule banning foreign companies from selling telecom services. In Pudong, AT&T will lease fiber from Shanghai Telecom, and build an overlay network, which it will both manage and market.

AT&T will have two of the seven board seats on the joint venture company, which will not be allowed to offer any voice services.

The Bottom Line

Ever heard the Biblical story about the mustard seed? AT&T is hoping its mustard seed investment in China will turn into a big harvest for the company down the road. It's a wise move. Nothing planted, nothing gained.