China's reorganisation of its telecoms industry opens the door for foreign companies to the world's largest telecoms market, but government inertia and protectionism could keep the floodgates shut for now.

The world's biggest industrial overhaul has removed some uncertainty that had kept strategic investors at bay, and China's telecoms operators are certainly hungry for more capital, technical expertise and marketing skill. "There's never been a better time for foreigners to get into the industry," said Daiwa Institute of Research's Marvin Lo.

"And on the Chinese side, they want the capital and know-how that global firms will bring to the table." At present, foreign telecom operators, such as Britain's Vodafone Group Plc and Spain's Telefonica SA, are confined to tiny stakes in the largest operators.

The restructuring, announced last month, is aimed at boosting competition between operators, and could trigger billions of dollars of orders for equipment makers like Ericsson Nokia, Nortel, Siemens and Motorola Inc.

Foreign companies, many of whom face slowing growth at home, are already queuing up. Qualcomm, SK Telecom and Singapore Telecom are courting the larger of China's two fixed-line players in the hope an investment will cement future cooperation, media reports say.

Telefonica, which owns 7.2 per cent of China Netcom, is reportedly interested in buying 10 per cent of wireless operator China Unicom. Analysts say Verizon Communications Inc, AT&T, KDDI and Softbank are also likely to be keen on China, home to nearly 600 million mobile users.

But they warn it would take a long time for Beijing to alter its policy of preventing significant foreign influence in strategic sectors. Meanwhile, Chinese carriers will be preoccupied initially with dealing with the reshuffle. "Foreign investors can do little in China's telecom industry except be financial investors.

This will remain the case for at least a short while," said Allan Ng, analyst at Bank of China International. Getting into the best position for future opportunities in China's telecoms sector should be foreign companies' immediate concern, Ng said, adding it was difficult to estimate the market's potential before Beijing clarifies its stance on foreign investment.

Hurdles, the overhaul folds China's carriers into three giant full-service companies and will grant each a licence to operate third-generation mobile services. China guards its telecoms sector jealously, banning foreign firms from owning any operator and grouping the industry with sensitive ones such as defence and energy.

Most industry experts don't expect Beijing to change its policy anytime soon. Seven years after Beijing joined the World Trade Organisation, foreign strategic investors have been confined to small stakes in the largest operators, Vodafone's 3.3 per cent of China Mobile and SK Telecom's 6.6 per cent of Unicom.

AT&T has a venture with Shanghai Telecom but, in an example of how regulators can clamp down on foreign investors, it can only operate intra-office networks for firms based in Shanghai.

Chinese carriers, for their part, are keen to secure foreign partnerships. But their focus for now is to ensure the industry revamp goes smoothly, before looking further afield. The spotlight has fallen on China Telecom, which will pay more than $15 billion for wireless peer Unicom's Code Division Multiple Access network, which only broke even in 2006 after years of losses and is just a third the size of Unicom's GSM-standard network.

Up to five companies, including one from the United States, have approached China Telecom, a source within the Chinese company's management said. But absorbing and integrating Unicom's CDMA network is Telecom's first priority for now, the source added.

"The soonest that we can begin to talk to foreign firms is probably the fourth quarter. We haven't even begun hiring financial advisers," said the source, who declined to be named because of the issue's sensitivity. 3G KEY Many expect Beijing to grant foreign entrants more leeway - eventually.

The country's three new telecom carriers have to contend with the different types of international third-generation mobile technologies bearing unfamiliar names, such as WCDMA and CDMA2000 and one standard which is homegrown to China.

And they face that challenge without a large number of quality content providers to make the service attractive to brand new users, like carriers enjoy in more developed economies. Still, many foreign firms are clearly testing the waters.

"This could offer an opportunity for us. We are open to and looking at various options," said SK spokeswoman Mina Ryu. Ultimately, a market that is adding over 8 million new mobile subscribers each month cannot be ignored.

"(Foreign firms) cannot afford to miss out on China in their global expansion roadmap," said Duncan Clark, chairman of BDA, a Beijing-based consultancy to firms and government agencies.

Source:economictimes