The Chinese government has recently issued an internal report calling for the ban of "Chinese-Chinese-Foreign (CCF)" or the "Zhong-Zhong-Wai" finance model used by the country's second telecom operator, China United Telecommunications Corp. (China Unicom). The move is viewed as a major setback to China Unicom and foreign investors who are using the CCF model to circumvent the Chinese government official ban on foreign participation in telecom network ownership, operations and management. Many foreign companies are surprised by the Chinese government's sudden move, however, the impact of this policy change is still not clear yet.
The ban, if implemented, threatens a range of China Unicom's planned and active projects, especially schemes for GSM digital mobile networks involving up to US$1.4 billion of investment. Many leading international companies such as France Telecom, Deutsche Telekom, Sprint, Bell Canada and Telesystems International Wireless of Canada, NTT International and Itochu of Japan, Korea Telecom and Singapore Telecom, have formed joint venture companies to help finance and develop Unicom's GSM and fixed networks under the CCF model. The impact of this proposed policy change is profound and the stakes are high for both the Chinese government and the international investors.
The change in position of the Chinese government on CCF investment model, though seemed sudden, comes about as a result of much deliberation within the government. The concerns of the Chinese government on the CCF finance model are revealed in the several reports and documents on Unicom by the State Economic and Trade Commission, the State Planning Commission, the State System Restructuring Commission, the Ministry of Finance and the State Council since early 1997. A thorough understanding of the Chinese government policies concerning China Unicom is of vital importance for foreign companies in China.
Table of Contents
AN EXAMPLE OF A COMPANY PROFILE
6.8 Bell Canada International
Joint venture company in Shandong:
Shandong Hehua Bell Telecommunications Engineering Co., Ltd.
124 Jing Shi Road
General Manager: Felix Li
In 1995, Bell Canada International (BCI) opened a representative office in Beijing. Later that year, BCI formed a joint venture called Yantai Bell. The purpose of the joint venture was to build a GSM network in the city of Yantai in Shandong province.
The local joint venture partner is Shandong Hehua Electronic Information Group Company. The foreign partners include BCI, and American International Group (AIG).
In December 1995, Yantai Unicom awarded contracts to Nortel and Motorola for the installation of a citywide GSM network with an initial capacity of 15,000 subscribers in Yantai. Nortel supplied one mobile switch and Motorola provided 23 base stations. The network was interconnected with China's PSTN network in October 1996. Commercial launch began on October 28, 1996. By February 97, the network had close to 3000 users and at the end of 97, the system had 10,000 subscribers.
The joint venture company is managed and operated by Unicom with guidance and support from BCI in customer service, marketing, sales, operations and maintenance.
According to Mr. Serge Rouleau, vice president of wireless of BCI, who made a presentation at a China Cellular & Wireless Summit '97 in New York, BCI has the following rights and objectives with Yantai Bell:
- Term of joint venture is 15 years
- Up to 250,000 subscribers together with other city networks
- Option to convert investment into equity
- Joint venture board control
- BCI appoints general manager and controller
He also said that the short term objective of BCI is to successfully build and operate cellular networks in the province of Shandong and the medium to long term objective is to obtain direct shareholding in successful telecommunications joint ventures in China. BCI will build four GSM cellular networks in four cities in Shandong - Yantai, Zibo, Jinan and Weifang.
Seeing the success in Yantai, BCI began to increase its investment in Shandong. In 1997, BCI formed another joint venture called Shandong Hehua Bell Telecommunications Engineering Co. Ltd.(Shandong Bell). The business plan of Shandong Bell calls for the installation and development of GSM networks in Jinan (provincial capital), Weifang and Zibo for Shandong Unicom.
Shandong Bells shareholders include:
American International Group (AIG) - 38.2%
Shandong Hehua Electronic Information Group - 22%
Shandong Unicom signed equipment supply contract with Nortel and Motorola in early 1997 for the installation of a GSM system with 50,000 subscriber capacity. The GSM system in Jinan was cut over in November 1997 and the Weifang and Zibo systems in early 98. By January 1998, the system in Jinan , Weifang and Zibo had a total of 16,000 subscribers.