AT & T will have all China talking

WITH the doors of market access now wide open, China's telecommunications sector could be worth as much as US$10 billion to the American communications giant AT & T by 1997, according to its chairman Robert Allen.

The wide-ranging Memorandum of Understanding signed last February with China's State Planning Commission has made China the cornerstone of AT & T's globalisation plans. And it is Mr Allen's long-term personal ambition to see the company produce at least half its revenues outside of the United States.

(Last year about 25 per cent of AT&T's $65 billion in revenues came from abroad.) But getting there will require all the corporate muscle that a multinational the size of AT&T can muster.

The logistics of building a China organisation on that scale is awesome. Should the battalions of executives that will be unleashed on the mainland succeed in achieving Mr Allen's grand vision for the market, AT & T China - set up on July 1 - will surelyhave become the fastest growing subsidiary the world has seen.

But add to that the political complications that must arise when a high-profile blue-chip like AT & T starts playing in a market dominated by the political machinations of Sino-US relations, and you can see where Mr Allen may need help and luck.

However, at the end of his first mainland visit 10 day ago, Mr Allen appeared to have lost none of his enthusiasm for China.

China's network expansion plans are spectacular, already making the country the biggest in the world for switching equipment. It will grow from about 20 million lines to 100 million by the turn of the century, and then to about 400 million lines in the first two decades of the next century.

The signing of the Memorandum of Understanding in February effectively gave AT & T its long-sought participation in that market for switching equipment.

But the Memorandum of Understanding is a broad document, and goes well beyond the selling of digital switching gear (though that remains a potentially lucrative part).

Quite simply, AT & T wants to recreate itself in China. Where Chinese regulation allow, the company plans to participate in every telecommunication sector in China as it does in the US.

The company wants to not only help the Chinese build its new network, but to help manage it, offer value-added services on it and develop new products for it. Given half a chance, AT & T, would go for participation in its ownership as well.

Politics aside, the scope of these ambitions makes China unique in the world, and has resulted in a radically different organisational structure for the mainland subsidiary.

Where the AT & T corporation acts globally as a conglomeration of 20-odd autonomous business units, in China all corporate entities will be managed under the newly created business unit AT & T China.

AT & T China is the first and only business unit based on geography, rather than the product or services it delivers.

The Beijing-based business unit will include responsibility for the markets of both Hong Kong and Taiwan.

And AT & T China is the only business unit that reports directly to chairman Allen rather than through an executive management committee - itself a fair testimony to the personal stake Mr Allen has put on developing China business. It also reflects the degree to which China is expected to directly impact shareholder values.

Mr Allen has appointed a chairman and chief executive of AT & T China so that decisions can be made in-country, immediately - without reference the New Jersey headquarters where problems or issues unique to the mainland could be taken out of context.

At the helm is William Warwick, a 35-year AT & T company veteran, who was most recently president of the AT & T microelectronics unit.

Mr Warwick's China experience is not extensive, although he was instrumental in establishing OEM (original equipment manufacture) relationships in Hong Kong and China for the supply of telephone handsets.

Mr Warwick likes to call AT & T China ''a large start-up''. The corporation's 22 business units are like investors bank-rolling the venture.

''After the Memorandum of Understanding was signed, there was pretty much general agreement at the top of the company at AT & T that we really needed to do something different in China,'' he said. ''Partly because this is still largely a developing market, and because AT & T's name here is not widespread, nor deeply established as it is elsewhere.'' Mr Warwick would not talk about how much the company was investing in the start-up phase of this venture. (With so much still under negotiation with potential China partners, it was impossible to say right now, he said.) But the investment will be significant. The company has already ear-marked two switch manufacturing projects, and is part-way through the feasibility study for a micro-electronics plant (the starting price for a chip plant is about $500 million).

The investment and joint venture plans range from training and research and development - there is preliminary discussion underway to set up an arm of the Bell Laboratories with partners - to network management.

''One reason that we are bringing AT & T here to China as one company is so that we don't just sell switches, or transmission equipment or cable or microelectronics or telephone sets - individual products,'' Mr Warwick said.

''Rather, we wanted to bring all of AT & T's capability here and package it,'' he said.

''We are selling a comprehensive offering here, rather than just pieces of equipment.'' But there are pressing issues - those relating to technology export restrictions to China, and the annual congressional bun fight over the renewal or otherwise of China's Most Favoured Nation (MFN) trade status.

Changes have been slow in coming, and renewed efforts at easing restrictions on technology exports to China will probably be even more difficult.

Mr Warwick said the company was lobbying on two fronts - first pushing for a change of sentiment within US Congress, and secondly pushing for administrative changes that redirect key definition, allowing for more limited restrictions.

''We already have licences to sell certain equipment here anyway, and we are pursuing this aggressively in Washington,'' Mr Warwick said. ''Bob Allen certainly went back from China more committed than ever to get personally involved in working out this issue with the administration and the Congress.'' There is no doubt about China's commitment to the development of its telecommunications network as an infrastructural priority. And despite the austerity measures being instituted by Beijing to control inflation, Mr Allen said he had been assured by senior leadership that telecommunications projects would continue to move forward.

The first phase of the Memorandum of Understanding covers five areas - switching, microelectronics, Bell Laboratories, training and network management. All of these are in various stages of development.

In switching, feasibility studies for two projects are largely complete, with AT & T ready to start individual contract negotiations with local partners. The feasibility study for microelectronics is about to get started.

Things are moving fast, with the objective being to ''get all of these completed so they can be executed by the end of the year'', Mr Warwick said.

Mr Warwick does not make predictions about the likely size of AT & T's China operation.

''I don't have a dollar figure yet that says we want to have a revenue of so many millions of dollars, but we are talking about something in the multi-billions of dollars,'' he said.

''And by the time I finish my business here, I want it to look like - in breadth and in scope - what it looks like in the United States, ''.

he said.