AT&T; in Venture to Provide Internet Services in Shanghai

SHANGHAI —  AT&T; became the first foreign company to buy into the fast-growing and fiercely guarded Chinese telecommunications market on Tuesday with a modest $6-million investment to provide Internet services to businesses in a section of Shanghai.

The U.S. telecom giant will have a 25% stake in the new joint venture, Shanghai Symphony Telecommunications Co. It is the first such deal since Beijing agreed to permit limited foreign investment in telecom as part of an accord allowing China to join the World Trade Organization.

The $25-million company is a partnership among AT&T; Shanghai Telecom, a subsidiary of China Telecom; and Shanghai Information Investment Inc., a state-owned investment company.

The agreement was touted as historic.

“The formation of this joint venture symbolizes the initiation of the open-door policy in China’s telecom industry,” said Shanghai Telecom President Cheng Xiyuan at a signing ceremony here.

Though foreign firms sell telecommunications hardware, cellular phones and other products and services in China, AT&T; is the first foreign phone company to take an ownership stake in China’s phone industry. By 2008, China is expected to surpass the U.S. as the world’s biggest phone market.

After joining the WTO, probably in 2001, Beijing will initially allow 30% foreign ownership of telecom companies, 49% a year later and 50% a year after that. But analysts say cutting the deal with AT&T; ahead of WTO accession suggests China is serious about opening its market.

“This is very encouraging for foreign investors who want to rush into China,” said Pindar Xie, an analyst at International Data Corp.’s Beijing office. “It’s as if the athletes have been standing at the starting point for a long time. Now the government is saying you can run.”

The government had effectively blocked all non-Chinese firms from participating in the domestic telecom sector, citing the need to protect state secrets and fledgling Chinese firms.

An official from the Ministry of Information Industry, which polices Internet activities, called it a “very big deal” that China allowed an exception to old rules and made the AT&T; joint venture possible.

“We hope this deal will expedite future cooperation with other foreign companies after WTO,” said Dai Shuang, director of the MII’s general planning department.

Still, the joint venture faces restrictions. It will only be allowed to provide broadband Internet and related services to the business community in Shanghai’s Pudong new development zone. That includes foreign multinationals such as General Motors Corp. and Citibank and large Chinese corporations, which are concentrated in Shanghai’s new Wall Street area. It is unclear when the company will be granted access to the rest of the city or country.

The venture limits AT&T; to “value-added services,” such as sending data over the phone network and Internet access. It does not involve “traditional telephony” services such as voice transmission.

Under the terms of the WTO agreement, China will allow foreign firms to operate Internet services in Beijing, Shanghai and Guangzhou when it joins the WTO. That access will be extended to 14 cities a year after joining the WTO, and will completely be opened two years after joining.

After seven years of negotiations, AT&T; officials said they are happy to start in Pudong, which last year alone attracted more than $29 billion in foreign investments.

“If anybody has any doubts about this cooperation, I’d show them the phenomenal growth I see in Pudong,” said John Haigh, AT&T; president of international ventures organization.