French connection ready to defend stake as AT&T plugs into telecoms market

JUST ask a China trader what it is like trying to find a commercial telephone line outside the central core of a Chinese city.

Just as it can be impossible to get a seat on a plane or a train, the most hardened China hand will tell you it can be as difficult, if not worse, trying to make telephone contact, not merely with the outside world, but even within the mainland.

It is not just a matter of letting your fingers do the walking. Even well-connected businesses in bustling, westernised Shenzhen have to wait months for a new telephone connection.

But this is surprising when you realise that China still has just 12.5 telephones per 1,000 people compared to 570 per thousand in Hongkong.

Chinese planners intend to change this by the year 2020, when they say China should have 400 telephones per thousand inhabitants.

And that is why China is the most vaunted prize for a wide variety of telephone companies the world over.

According to Chinese Government statistics, the country has already allocated US$800 million for a national fibre optic backbone network, which, officials believe, will help the mainland leapfrog over competitors into the early 21st century.

The Ministry of Posts and Telecommunications reportedly budgeted some US$6 billion for telecoms spending between 1991 and 1995, but that figure has already been superceded.

Now, according to Hongkong Telecom International, which is keen to get its figures right for the Chinese market, Beijing and its regional governments will spend US$10 billion on network systems alone over the next four years.

Certainly, French telecommunications firm Alcatel NV, a subsidiary of the massive Alcatel Alsthom group, reckons it will continue to play an important part in realising the Chinese dream of a phone for every household.

Last year, Alcatel, which now commands 40 per cent of the market, created 1.2 million phone lines for China.

According to Alcatel vice-president for business development Jozef Cornu, his firm's original plan was to produce just 300,000 lines in 1992 and sell them at twice today's prices.

''But, thanks to the volume we are doing now and technological advances that have cut costs, we can still make a good profit,'' he said.

Last year, Alcatel joint-venture partnership Shanghai Bell Telephone Equipment Manufacturing had sales of US$240 million, which produced a return of 20 per cent, said Mr Cornu.

Shanghai Bell is 60 per cent owned by the Chinese Ministry of Posts and Telecommunications, 32 per cent by Alcatel and eight per cent by the Belgian Government.

Recently, officials announced that Alactel would make a direct investment of 245 million ECUs between now and 1997. This compares with an investment of just 60 million ECUs in 1991.

Indeed, Beijing is so delighted with the telecoms partnership, says Alcatel, that it has been extended for another 20 years to 2013.

Things, however, have not always been so good for Alacatel in China.

''You had to adapt and to find strong Chinese partners if you wanted to survive, and that is what we did.'' Having made its first connections with China in 1983, Alcatel completed its first deliveries of exchanges and lines in 1985. ''Those were difficult days, but we learned a lot.'' Alcatel's operations in China moved into profit in 1989-90 and it has not looked back since.

''From then on, we were ready to go anywhere in the country,'' said Alcatel executive Monique Vanvi, who has been a part of the China team from the beginning.

''Now, there is no major city where we don't have a presence.'' Indeed, today Alcatel is so sure of itself that the recent return to the Chinese market of American giant AT &tT, and the involvement of its subsidiary, Bell Labs, has not moved the French conglomerate.

The recent signing of a Memorandum of Understanding between AT & T and China's State Planning Commission effectively negated a secret ban imposed by Beijing in late 1989 barring Americans from the mainland telecoms market.

A decade earlier, AT & T had missed the boat when it turned down an invitation to become a key player in modernising the Chinese phone system.

Subsequently, State Council ''Directive 56'' was signed by Beijing, limiting major phone switching orders to three companies for over a decade.

The now notorious ''Directive'' declared that switching contracts should be reserved for companies from Europe and Japan. The Americans were out in the cold, much by their own volition.

As there are not that many major telecoms suppliers in the world, the Chinese chose Alcatel, Siemens AG of Germany and NEC Corp of Japan. Although AT & T is back, it has a long way to go to catch up with the privileged trio.

''AT&T is an extremely good organisation,'' said Mr Cornu, ''but it is a long way behind us. They don't have the right people on the ground in China to cause us much worry.'' Alcatel, is now so decentralised that it allows each of its international offices to bid for contracts on an individual basis, especially in the massive Chinese market.

Indeed, right across China, a variety of Alactel's international subsidiaries seem to have carved up the market.

In May, Alcatel's Belgian subsidiary, Alactel Bell Telephone, was awarded a series of contracts that will bring in US$1.7 billion worth of deliveries to China between now and the end of 1994.

The next great leap forward for all telecoms manufacturers will be a still nascent cellular revolution.

Ms Vanvi said there were already more than three million radio pagers in China ''and radio pagers drive the mobile systems where there is a lack of fixed lines''.

Today, China has almost 300,000 mobile phone subscribers - 50 per cent of them in Guangdong. The plan is for 500,000 mobile units to be in operation by 1995.

The waiting lists for cellular phones in the cities of Beijing, Shanghai and Guangzhou each held 30,000 names, said Ms Vanvi. By contrast, the waiting list for fixed lines in Beijing is currently running at about the 30,000 level.

Across the country, there are maybe 200,000 people hoping to be allowed to have mobile phones.

But the big cellular question facing Alcatel and other players, is the type of standard operations system the Chinese will eventually adopt.