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To: ALL IN PAUL who wrote (3030)	4/5/1999 3:11:00 PM
From: Charles A. King	Read Replies (1) \| Respond to of 6180

Microsoft Product Faces Chinese Hurdle 02:18 p.m Apr 05, 1999 Eastern By Matt Pottinger BEIJING (Reuters) - With the introduction in China of a cheap alternative to personal computers, Microsoft Corp. has dodged a major obstacle to widespread Internet use in the world's most populous nation -- the hefty price tag of PCs. But the new product -- a slimmed-down operating system called Venus that works in concert with a television -- still faces hurdles before finding its way into Chinese homes, and the country's moves to foster Internet growth may prove crucial. ''Our goal is a very aggressive goal, and that is to introduce millions and millions of people to computers and to the Internet,'' Microsoft Chairman Bill Gates said at an unveiling ceremony in the southern city of Shenzhen last month. Under the plan, Venus would be incorporated into a ''set-top'' box or video compact disc (VCD) player that could be hooked up to a television. The resulting electronics product -- combining a basic computer with Web-browsing capabilities -- would sell for one-fifth the price of a PC. Companies such as Acer Inc., Philips Electronics NV, and China's Legend Holdings Ltd. plan to roll out the devices in the second half of the year. The Venus system is among the first products developed by a Beijing research laboratory Microsoft set up last year, and its Windows CE and Web TV products are tailored for the domestic market. Statistics published in state newspapers show that China has 320 million television sets. This compares with about 11 million PCs installed nationwide and two million Internet users. BUT HOW TO CRAM AN ELEPHANT DOWN A TUBE? With the Internet function a key selling point of Venus, its success may depend heavily on the pace of China's Internet growth in the near future. So far, key barriers to faster growth have been an over-burdened infrastructure and high online fees. ''There's a little bit of a problem with what Gates is proposing -- bandwidth,'' said David Wolf, managing director of media consultancy Claydon Gescher Associates in Beijing. China's corner of the World Wide Web is actually made up of four networks. While each is a solid backbone in its own right, the connections between the networks are frail, Wolf said. The problem is worse on China's international links to the Internet. The capacity of cross-border connections has grown only 50 percent during the past 14 months, while the number of Chinese online has tripled, Wolf said. The result is a frustrating bottleneck of data traffic. ''You can't get an elephant down a two-inch pipe,'' he said. GOING ONLINE IS STILL EXPENSIVE Bruce Ren, Microsoft's China manager in charge of the Venus project, said Beijing was addressing the issue with massive spending on telecommunications infrastructure. The greater problem was high telecommunications fees, he said. While China Telecom, the country's state-owned monopoly, slashed online fees and local phone bills by as much as 50 percent this month, the cost of going online as a proportion of income can still be several times that in the United States. ''It's one of the main obstacles,'' said Ren. Chinese Premier Zhu Rongji raised the hopes of Chinese consumers last week when he told reporters he wanted these prices to fall ''several times'' more than they had. But Zhu gave no timeframe for further cuts and telecommunications analysts said he could face heavy resistance from China Telecom's allies in the government bureaucracy. Another challenge in getting ordinary Chinese online will be to encourage home-grown, Chinese-language content, Ren said. ''Today's Internet user in China belongs to an elite -- well educated, understands English,'' he said. China's estimated 2.1 million Internet users are predominantly young, urban males. Microsoft hopes the Venus project will spread Internet use across a wider slice of Chinese society and prompt a flourishing of local web content that would prop up Venus' sales. ''It's a chicken and egg issue,'' he said. Duncan Clark, a partner with consulting firm BDA China Ltd., said the country had already begun to see a boom in local content. Locally registered Web sites exploded to 5,300 at the end of 1998, from only 1,500 a year earlier, he said. The change could fuel a profound shift in Internet demographics. ''Move aside, geeks, we're getting a lot of other people online,'' Clark said. Copyright 1999 Reuters Limited. All rights reserved. Republication and redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. infoseek.go.com Charles