China: a natural environment for cellular business development

Mobile Phone News, April 12, 1993

In the People's Republic of China, it is only a matter of finding a good business partner to embark on a business endeavor, sources told MOBILE PHONE NEWS. With economic growth at 12 percent last year, there is evidence the world's most populous nation is shifting its economic development into high gear.

China recognizes economic development requires high-tech communications capabilities and within the past 12 months made it possible for international companies such as NovAtel, MTC Electronics, Motorola, AT&T and Ericsson LM to fuel its immediate need for high-tech communications equipment.

"China has a huge commitment to import technology," said Roland Williams, NovAtel Communications (Far East) Ltd. COO. However, once the technology is translated into a consumer product, it is not uncommon for China to export 70 percent of the finished product.

...NovAtel Entered China Marketplace With SCS Libra System

In China, NovAtel markets its SCS Libra cellular system, which can network cellular radios through a cordless private branch exchange to extend access to the wired telephone network. Additionally, as many as 10 SCS Libras can be networked together to support approximately 350 cellular phone users. "SCS is a tool for social improvement and has been well received in China," said Williams.

For fixed cellular, the Chinese are using the 800 MHz band, which currently the military occupies. Although the military controls the 800 MHz band, it is willing to allow NovAtel's equipment to provide extended telephone service as long as the military plays a part in providing service. The military is a fully commercial organization, and in part, self-supporting, said Williams. "The military's role in cellular is that it usually has a hand running the communications service," Williams said.

Through SCS Libra marketing, NovAtel discovered "[it is important to understand] that everything is a relationship, and the Chinese government needs to know the proposed business venture is for the good [of the people]," Williams said.

It has been NovAtel's experience that with a joint venture, technology is the Western partner's responsibility, and the Chinese handle project funding.

...China Avoids Past Boom-and-Bust Mentality

China cautiously is implementing free-market type of reform and moving toward a somewhat controlled consumer-based economy. In the telecommunications realm, China's Minister of Posts and Telecommunications Yank Taifang recently said the regulation of Post and Telecommunications must be subject to the state's central planning and management, and basic business must be regulated by the state's unified administration.

Previously, with China's Communist ideology, consumer prices were set by the government's central planners. Today, most consumer goods prices are set by the market, said Dan Biers, Associated Press correspondent. Local officials in China's provinces are creating economic zones with tax breaks and other incentives to attract foreign investment.

The Chinese government cautiously is monitoring the country's inflation rate, which reached 6.4 percent nationally in 1992, to keep the economy from growing too fast and spinning out of control, said Biers.

NovAtel's Williams said: "There have been subtle forces [propelling China's economic change] for quite some time." China's southern and coastal provinces have been producing goods and stimulating income, resulting in the formation of a pseudo market-based economic structure. "Free-market zone provinces, such as Shanghai, have influenced neighboring provinces--which also want to purchase consumer goods--thus stimulating the movement toward China's market-based economy."

Recently, Taifang told foreign press China will commit considerable capital to telecommunications network development. The goal is to have 98 million telephones providing 5 percent of the population with phones by the year 2000. 30 percent to 40 percent of the people living in China's big cities and major open coastal cities will have telephones, and more than 70 percent of the counties throughout the country will have access to international long-distance interconnection. Additionally, cellular network development will be increased.

...MTC Active in China for 10 Years

Joint ventures with high-tech international companies play a big part in China's development needs. MTC Electronics Technologies Co. Ltd., a Richmond, British Columbia-based electronics firm, recently joined with Hubei

San Gao Telecommunications Technology Development Corp., a company affiliated with the Hubei PTT administration, to build and to operate the cellular system in South East China's Hubei Province. Hubei's population is approximately 55 million. Wuhan, the city where the system will be phased in, boasts of a population base of 6 million.

According to the contract, MTC will provide unspecified "advanced technology" to the venture partnership.

Reports recently have circulated that Chinese government agencies are buying small high-tech companies as a way to obtain needed technologies. Peter Jensen, an attorney and MTC director, confirmed between 10 percent and 20 percent of MTC's shares are owned by Chinese "agencies."