Who'll Rake In China's Telecom Bonanza?

China's latest attempt to control information technology seemed like an ordinary hard-liner crackdown. In mid-October, Beijing banned the use of satellite dishes and followed that up with new regulations on vendors of cordless telephones and pagers. "If China's information system is spread about and not grasped firmly in hand, how can people feel safe?" asked the official Economics Daily.

Don't be fooled by the rhetoric. The Chinese are fighting for much more than ideological purity. Behind the scenes in Beijing, a high-stakes battle is taking place for control of the telecommunication business.

The phone regulations are part of a struggle involving groups battling to grab a piece of the telecom action from Beijing's Ministry of Posts & Telecommunications (MPT), which wants to keep its industry monopoly. Small wonder. The MPT's revenues for the first six months of this year hit $3.6 billion, nearly a 60% jump over the same period last year. And the government wants to increase the number of phone lines from the current 17 million to 100 million by the end of the decade. "The potential profits are huge--and everyone wants a slice of it," says Paul Deayton, a Credit Lyonnais analyst based in Hong Kong.

To consolidate its grip, the MPT is trying to regulate the industry by forcing other ministries involved in the business to get MPT licenses. But the People's Liberation Army (PLA), the Electronics Industry Ministry, the Railways Ministry, and the People's Bank of China, which have telecommunication systems with excess capacity, want to challenge the MPT by jointly creating a rival network.

Already, the challengers are starting to make inroads. The State Council has given approval for Ji Tong Corp., a company established earlier this year by the Electronics Industry Ministry, to start a pager and data communications service that links up with the public phone system. Ji Tong is now awaiting a license from the MPT.

BET ON THE ARMY. Perhaps the most formidable opposition comes from the PLA, which is very much involved in the paging, cellular phone, and satellite industries. Throughout southern Guangdong province, the military hooks up satellite dishes for all users, private or public. It also controls the various frequencies--and has friends in high places.

Eventually, the PLA is bound to have its way. According to Allan Ng, a telecom analyst for S.G. Warburg Securities (Far East) Ltd., the MPT over the next few years will split in two: One part will regulate the industry, the other will provide services. The regulators will also be able to set prices for all telecom companies. "So even if all the other ministries are allowed to take on subscribers, they are not going to be full-fledged competitors," says Ng.

The battle does take on an ideological dimension when it comes to satellite dishes. The latest restrictions on the dishes were announced shortly after Rupert Murdoch, whom Beijing mistrusts, bought the satellite network Star-TV from Li Ka-shing, the Hong Kong tycoon who is a close friend of many top Chinese leaders. Star-TV, which carries MTV-Asia, BBC news, and Mandarin-language entertainment programs, is seen as an ideological threat to the party. "If Star wants to get into the Chinese market, Murdoch will have to pay," says one Hong Kong analyst. "One way is to force him to go through cable."

Many foreign suppliers of telecom gear think it's time the MPT got its house in order. Some of China's many wireless networks are terribly inefficient. If the MPT can limit the available networks to approved users and suppliers, Western makers will come out ahead. "If they enforce the rules, it should help official suppliers like us and Motorola," points out Michael Ricks, Ericsson's vice-president for business development.

China eventually will need foreign capital to modernize its phone system. Before that happens, the ministries will slug it out. Luckily for them, the needs of China are so great that there are plenty of profits to go around.

      MINISTRY OF POSTS & TELECOMMUNICATIONS: Beijing's version of Ma Bell is 
      determined to maintain its monopoly
      JI TONG CORP.: Company set up by the Electronics Industry Ministry to operate 
      wireless systems needs Posts & Telecommunications approval
      PEOPLE'S LIBERATION ARMY: Military runs booming paging, cellular, and satellite 
      PEOPLE'S BANK OF CHINA AND RAILWAYS MINISTRY: Along with the PLA, group wants 
      to help set up rival phone network
      NEWS CORP.: Chinese ban on satellite dish use is aimed at Rupert Murdoch's 
      recently acquired Star-TV 
      MOTOROLA AND ERICSSON: Major suppliers of wireless technology should benefit if 
      government succeeds in crackdown on illegal Taiwanese and South Korean equipment