A very bullish article on Netmoves' position in China.
zdnet.com
Business As Usual In China?
By Louis Trager
June 14, 1999 8:44 AM ET
The news about China in recent weeks has seemed
like nothing but trouble for U.S. telecommunications
services companies interested in doing business
there: the bombing of the Chinese embassy in
Belgrade, Yugoslavia, inciting vehement protests; a
major Chinese espionage scandal exploding in
Washington, D.C.; the anniversary of the Tiananmen
Square tragedy; the slowing, at least, of China's bid
for World Trade Organization membership, marked by
withdrawal of a proposed concession that foreign
interests - for the first time - could buy majority
stakes in Chinese telcos.
But the telecommunications opportunities in China
are so enormous that neither side allowed
the highly visible controversies to get in the way of
talking turkey. Last month, at the height of tensions,
small New Jersey company called NetMoves
completed a deal to provide Internet fax service
through YiTong Telecom Service Enterprise, a
subsidiary of the government's dominant China
Telecom, throughout Guangdong province. The
province has business ties to 170 countries.
George Frylinck, NetMoves' vice president of
international business development, confesses that
one of his first thoughts on hearing about the North
Atlantic Treaty Organization's embassy bombing was
to worry about bad repercussions for NetMoves'
Chinese business. But when Frylinck called an
associate in southern China, he was reassured.
"That's an issue for Beijing. We're too busy making
money here," the associate said.
Internet fax presents an especially lucrative vista in
China. The country is many time zones from the
West, making asynchronous communication useful.
In addition, many Chinese are far more comfortable
writing English than speaking it, Frylinck says.
Fax has advantages over e-mail that don't apply in
North America and elsewhere. Internet adoption,
though growing fast in China, remains extremely low -
there were about 2.1 million users at the beginning of
the year. And the Chinese language has hundreds of
characters, making it ill-suited to keyboards.
But traditional faxing remains very expensive there,
because deregulation and competition have yet to
eliminate exorbitant long-distance and international
phone rates. Conventional phone calls to the U.S.
cost about $1.81 per minute, Frylinck says, whereas
customers of NetMoves' 20 Chinese partners pay
about 12 cents per minute.
So, with the surge in Chinese business, it's
understandable that Internet fax is surging as well.
From 15 million minutes in 1998, Chinese service
should shoot up about 250 percent this year and next, and then triple in 2001 and 2002 - to 900 million
minutes, the most in the world, projects Peter
Davidson, president of Davidson Consulting and fax market research manager at International Data Corp.
At an average of 40 cents to 50 cents per minute,
that's a near-instant market of hundreds of millions of
dollars, Davidson says.
Even before the YiTong pact, NetMoves had staked
out the leading position with about 10 million minutes
of total Chinese fax traffic. China already represents
the company's second-biggest market after the U.S.
NetMoves, previously known as FaxSav, has 114,000
customers in 150 countries.
It's not entirely business as usual in China for foreign
companies pitching Internet Protocol (IP) technology,
especially when it comes to diplomacy.
For the first time in its business dealings around the
globe, ITXC - a carrier's carrier for Internet telephony -
had to hire an agent to smooth the way on the ground
for its service test in China. Chief Executive Tom
Evslin found himself compelled to enjoy a banquet
without being able to identify all the dishes. Israel's
VocalTec Communications, an IP telephony software
company chosen to supply systems for the Chinese
test, mustered a state delegation for the
announcement, including Israeli President Ezer
Weizman.
Negotiations in China move slowly, Frylinck says, and
just because an outsider thinks a deal is nailed down
doesn't make it so to the Chinese negotiator across
the table. The biggest risk is that a Chinese partner
will "use your stuff and then rip you off and do it
themselves," Davidson says.
But none of this has much to do with recent China
strife, or any of the other political risks that might be
associated with an economy that remains heavily
state-controlled, in a state controlled by the
Communist Party. "I think it's more cultural," Frylinck
says.
Frylinck wasn't entirely surprised the crises didn't
interfere with his and other telecom deals. "Most of
the [Chinese] people we are dealing with are probably
more capitalistic than we are," he says. "They're very
much interested in making money, very competitive. I
believe that the Ministry of Information Industry, the
ministry that oversees the telecommunications
industry, is watching to see what best serves China."
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