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While there are indirect ways for foreign investors to tap the mainland's telecoms markets, direct investment remains infuriatingly beyond their reach.

 State policy dictates ownership or operational control of telecommunications ventures is not allowed, nor does it appear likely to be allowed for some time.

 However, in the past Beijing has shown itself keen to experiment and it is about to experiment again. This time a small Beijing-based Internet service provider (ISP) has been given permission to raise capital by selling up to 30 per cent of itself direct to foreign investors.

 The company, Cenpok InfoCom, recently gained permission for the deregulation from the State Committee of Economic reform.

 Vice-president Yun Tao said the company simply had put itself forward and received the go-ahead without any fuss.

 Founded in 1996, Cenpok is a small company with apparently good connections.

 It has about 5,000 customers using its service in Beijing and Xiamen in Fujian province. Its content service is called Beijing Online.

 Shareholders include China Central Television, the former Ministry of Posts and Telecommunications (now part of the Ministry of Information Industry) and private companies.

 The company relies on China Telecom's infrastructure to move its traffic around the country.

 However, the high interconnect fees charged by China Telecom make the business environment for mainland ISPs difficult.

 'Leased-line costs are high. Until these lower, ISPs will never be profitable,' Mr Yun said.

 This goes to the heart of Cenpok's strategy. Mr Yun said there was little point in looking to add many more customers when interconnection costs were so high.

 Instead, the company plans to move into Internet-related businesses through strategic alliances.

 Looking to the future, these are likely to include fax by Internet and voice calls over the Internet.

 In the present telecoms climate, these are areas which potentially could bring it into conflict with the all-powerful China Telecom.

 Mr Yun said the idea was to partner China Telecom rather than compete with it, combining China Telecom's infrastructure with Cenpok's market-oriented management approach.

 To that end, Cenpok recently signed an agreement with the China Post and Telecom Bureau (CPTB), part of China Telecom, under which it will lease part of the state public multimedia network.

 This network already has operations in 26 provinces with 270,000 users at the end of March.

 Under the agreement Cenpok will take this network as a platform to build its own virtual private network and independently develop new subscribers.

 The agreement talks of an ambitious roll-out of electronic business, Internet access and content services in 50 or more developed cities in the next two years.

 It is looking to establish customer service, technology support and network training centres in these areas.

 To grow in this manner, the company needs money, and that is where foreign investors come in.

 They are to be offered preference shares in Cenpok in return for capital. These give the investor no voting rights but could allow a higher return than a similar holding comprised of common shares, depending on negotiations with the company.

 The hope for an investor would be that as the mainland foreign investment climate liberalises, these preference shares could be converted into common stock allowing normal ownership rights and returns.



Cenpok wins mainland approval for nationwide Internet service rollout