Go East, Young Man, Far East

f the global telecommunications market is exploding, it could be said that China's is going supernova.

on earth have such limited access to a telephone as China's 1.2 billion citizens. China, however, is an emerging economic giant shrugging off years of Maoist slumber. And as this Asian economic juggernaut gathers speed, the Chinese government is rectifying the nation's telecommunications shortcomings at an astonishing pace.

"China is buying and installing the equivalent of Bell Atlantic's entire network every year, and will do so for at least the next 10 years," said Christopher Padilla, AT&ampT's director of federal affairs. "The world has never seen anything like it."

This combination - the world's most populous nation, hottest economy and most massive national need for telecom equipment - equals an incredible opportunity worth billions for foreign telcos, an atomic boom with no end in sight.

"With the size of the economy, the increasingly affluent and big population, the vast land and the growing demand for telecom and information services, there should be no doubt that China is an enormous market by any standard," said Zhao Gong Chang, First Secretary (Economic and Commercial), the Embassy of the People's Republic of China.

During the next five years alone, Zhao said, China is planning $40 billion worth of telecom projects to create new wire line, wireless and satellite communications links. China's telecommunications infrastructure remains woefully underdeveloped, and the Ministry of Posts and Telecommunications is straining to deliver basic telephone service to remote rural areas even as it commissions advanced digital data networks to link the flourishing coastal cites.

In 1994, Zhao said, China's telecom network increased its long distance capacity by 63

percent and added 10.8 million subscribers.

Wireless communications services, which are especially well-adapted to connect this vast landmass with itself, added 930,000 cellular phone subscribers and another 5 million users of pagers. By the year 2000, Zhao said, 78 million telephones, nine million cellular phones and 25 million pagers will be in use.

"There are lots of challenges for China, lots of opportunities for companies," said Eui Koh, group director of Asia for Intelsat. "Traffic volume on China's network now doubles each year. That's amazing."

Although the government has ambitious plans for a full-blown Chinese digital infobahn, the country however, has a long way to go before it can boast anything even approaching universal service.

Indeed, according to AT&ampT statistics, there are currently less than 2 telephones per person in China. Even if the government continues to meet its ambitious goal of increasing telephone penetration 15 percent annually, only some 5 percent of the entire Chinese population will enjoy dial tones by the year 2000. Even in urban areas, telephone penetration rates will not exceed 30 percent.

That, of course, is good news for companies such as AT&ampT, Siemens, Nortel, Alcatel, Ericsson, Fujitsu and others supplying a customer whose ravenous appetite won't be fully sated for decades. Because of China's mind-boggling need for telecom equipment, the government has encouraged the formation of joint Sino-telco ventures to help the nation supply itself with vital components.

"In the 1990s, China's [telecom] growth will be exponential, so they want to manufacture the switches; they are already making satellite equipment," said Koh.

AT&ampT alone has invested $30 million in eight joint ventures that manufacture a range of products including fiber optic cable, transmission equipment and switching systems. Padilla said AT&ampT has had more than one billion in sales to China since 1993.

Padilla also said Zhao's five year projection may be a little short - some $20 billion short. AT&ampT, he said, estimates the total networking equipment market in China will exceed $60 billion over the next five years, with much of that coming from wireless products.

Doing business in China, of course, is fraught with bureaucratic, cultural, financial and political challenges. Periodic U.S.-Sino trade disputes linked to human rights in China, or the lack thereof, keep the Washington staffs of major telcos busy trying to figure out what they can import to China and export back to the U.S.

"Telecom equipment has been on every retaliation and counter-retaliation list between the U.S. and China," said Padilla.

And the battle between powerful telcos for a share of this immense market has created cutthroat pricing and razor-thin margins. The price of digital switches in China, for instance, has fallen to half that for the rest of the world.

In addition, telcos hoping to profit in China better bring their checkbooks. Zhao said the Chinese government expects to pony up only about half the $40 billion earmarked for its next five-year telecom plan, with telcos providing most of the balance.

Although foreign telcos owe their success to advanced telecom technology and services, Zhao said, an equally, if not more important service they provide involves dollars, francs, deutsche marks and kroner.

"Financing with low interest rates and long-term payment is key, and in a sense, will be decisive in competition within the next few years."

People's Republic of China

Profile

CapitalBeijing

Area9,596,961 sq km

Population1.17 billion

Urban Population26

Population Growth1.5

GDPUS$283.63 billion

GDP Per CapitaUS$242

Telephone Density0.73/100

population

Waiting List for Telephone Line1,620,000

Cellular Subscribers475,440

Telex Subscribers14,000

International Outgoing Traffic141.524

million calls

Network DigitizationSwitching - none

transmission - none

Data provided by Intelsat