China Unveils Major Telecom As It Clamps Down On Internet Investment

As it aggressively prepares for large Internet traffic despite not determining how to regulate its Internet economy, China unveiled its third major telecommunications carrier and warned that new laws may exclude foreign investment in China’s Internet service providers (ISPs) and content providers.

The China Netcom Corp (CNC) is building a 20-gigabyte Internet backbone that is designed to take high-speed Net access to 15 Chinese cities by next summer. The move will put China’s Internet infrastructure ahead of most other countries. “It’ll be one of the highest-speed backbones in the world,” said Edward Tian, chief executive of CNC.

The Chinese Are Rushing Onto the Net

These announcements come at a time when Internet usage in China is exploding. Internet users in China have doubled in number, from two million last winter to four million just six months later. CNC’s launch of a new telecom carrier is designed to meet the needs of multinational companies, telephone companies, government offices, ISPs, and high-income residents as they rush online.

New Telecom Designed For Broadband Delivery

While China’s long-standing telecom companies, China Unicorn and China Telecom, compete for fixed-line and mobile markets, CNC is going after the lucrative broadband data markets. This move comes at a time when China Telecom is upgrading to provide ISDN and other high-speed services. However, CNC is not worried about competition from the traditional telecoms, since its new system will allow the company to provide services for less than China Telecom.

In economically-strong cities such as Beijing, Shanghai, Guangzhou and Shenzhen, CNC will link directly to government office buildings. The company is already offering Internet Protocol (IP) telephone services.

CNC was launched earlier this year by a handful of government bodies. It had an initial capitalization of 400 million yuan ($48 million US$). In addition to its launch funds, the Ministry of Finance also issued 200 million yuan ($24 million US$) in 10-year bonds. State banks are competing to provide credit.

Tian forecasts profits to come two to three years after its core backbone is in place. In order to attract executive talent, Tian plans to offer strong stock incentives to Chinese executives from Microsoft, Motorola and Marconi.

Still a Mystery

On the side of foreign investment in Chinese IPOs, Zhang Cunjiang, head of the telecommunications bureau within the Ministry of Information Industry said, “The government has not agreed to foreign investment in ISPs.” Zhang told Britain’s Financial Times that foreign investment in ISPs and Internet content providers (which includes portals, homepages and chat rooms) was banned.

In conflicting comments, Zhang said the government had pledged to gradually open up this potentially huge sector, but until then companies would bear all the risks for their activities in China.

Zhang did not give a timetable for new telecom regulations, and he did not indicate where new regulations would leave those who are currently invested in China’s Internet economy. Dozens of foreign-invested content providers such as Yahoo! plan to continue business as usual.