Making the connection

Updated: 2013-06-11 14:19

By Sudeshna Sarkar (China Daily)

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Making the connection

Proximity, affordability and financing make Chinese firms welcome in ASEAN telecom sector

Sudhir Pasumarty and his five team mates were feeling upbeat. They had been developing a corporate social responsibility project at the Singapore office of the Grey Group, the New York-based global advertising and marketing agency, and it is ready.

Their project is a mobile app, Lend An Eye, that can help a blind person "see". Users wear the phone around their necks while venturing out alone. If they require directions, help to cross the road or to order from a caf menu, all they need to do is double tap the screen.

Voice activation then connects the user to a volunteer and the camera issues live video streaming as well as a map. It's as though he is standing right next to the volunteer, who reads out the menu or says when it's safe to cross the road.

Thousands of miles away in Ho Chi Minh City, writer and tech wiz Anh-Minh Do was describing another telecom marvel. Tourists visiting Vietnam will love Aloxeom, a web-based motorbike taxi service, a far cheaper option to cabs.

What makes it especially cost-effective is that Aloxeom also indicates the route via a map and texts the correct fare so that the passenger is not taken for a ride.

In Cambodia, seeking a visa is no longer the dreary, time-consuming queuing up it used to be. Now online applications are possible, thanks to the Ministry of Foreign Affairs and International Cooperation's e-visa website, and while waiting for the transaction to be completed, the visitor-to-be gets a virtual tour of places of interest and cultural activities.

A major common thread running through these three Southeast Asian countries and their other seven peers that make up the Association of Southeast Asian Nations (ASEAN) is the telecom network that connects this bloc of 576 million people regionally as well as with the outside world.

And a significant component of that thread is Chinese equipment, software and finance.

"Within the telecom sector, (we) forecast strong customer and revenue growth for most countries in ASEAN, particularly in the larger and faster-growing economies such as Indonesia, Malaysia and Thailand," says Andrew Kitson, business and industry information provider Business Monitor International's senior information and communication technology analyst in London.

"This is because large numbers of people - and businesses - in these countries are still not provided with adequate telecommunications services. Thus, there is considerable room for local and foreign investors to see a good return on investment in technology hardware and services."

This opportunity, Kitson says, has come about from the increased presence of Chinese technology companies across the region, specifically Huawei and ZTE.

"They offer very low-cost products, which appeal to local telephone and mobile operator companies and their consumers," he says.

"The other strengths are that they are well known in the region, are a trusted brand and the technology is proven."

Chinese equipment vendors are also popular because they are ready to extend affordable financing by bringing in Chinese banks in exchange for better distribution and sales rights.

"It leads to greater opportunity for trading and financing in other industries," Kitson says. "For instance, Indonesia is a big buyer of Chinese telecom equipment like mobile handsets, switches and fiber optic cables. Local operators may not have the finances to buy in bulk. Chinese banks can then lend the money.

"A success story in telecom leads to investment in other industries like autos, pharmaceuticals, energy and infrastructure."

Frontier markets, like Myanmar, Laos and Cambodia, also offer good investment opportunities for Chinese companies due to the low penetration of mobile phones and broadband services/infrastructure, he says. Plus these countries too have an appetite for Chinese low-interest credit and other financing initiatives.

While the US, the EU and Australia are raising barriers against Chinese telecom companies, the latter enjoy decided advantages in ASEAN.

"Chinese companies have advantages due to two reasons," says Chris Devonshire-Ellis, founding partner of Dezan Shira and Associates, a foreign direct investment advisory firm.

"Firstly, a general acceptance and knowledge of traditional Asian culture in which China has played a large part; plus the free trade agreements signed by China with ASEAN with free trade in over 7,000 products already in place."

The China-ASEAN Free Trade Area was launched in 2010 and two years later, trade between the two reached a record high of $400.9 billion. In 2012, while China's total trade grew 6.2 percent, China-ASEAN trade rose by 10.2 percent. Chinese non-financial direct investment in ASEAN was $4.42 billion, 52 percent more than in 2011, taking the cumulative amount to $23.6 billion.

Today, while Beijing is ASEAN's biggest trade partner, the grouping is predicted to return the compliment in the next two to three years.

"Chinese enterprises are highly enthusiastic to go global and the investment fields are increasingly expanding," says Xu Ningning, executive secretary-general of the Beijing-based China-ASEAN Business Council.

"For an overseas investment destination, many Chinese enterprises prefer to choose ASEAN countries first. They hope to make good use of the CAFTA policies."

Chinese telecoms' overseas forays received State encouragement last year when the Ministry of Industry and Information Technology urged them to venture abroad and compete globally. Private investors were asked to put their money into telecommunications and other information technologies.

ASEAN too has been strengthening its ICT, especially after a World Bank study indicated that a 10 percent investment in broadband networks could raise economic growth by 1.38 percent.

In 2011, the ASEAN ICT master plan with the slogan "We're stronger when we're connected" was formulated, envisioning a broadband corridor linking cities in the region and a regional Internet exchange by 2015.

ASEAN's attraction as a lucrative telecom market is also due to the surging economic growth, rapid urbanization and a growing middle class as well as tech-savvy and well-heeled younger generation eager to sample new technological products.

In Singapore and Malaysia, 95 percent of the online population possess a laptop or PC; the global average is 85 percent. In Thailand, Indonesia, the Philippines, and Vietnam, 90 percent of online users have mobile phones, a higher percentage than in developed markets.

Internet and social media services are used daily: Gmail, Facebook, LinkedIn, Skype, YouTube, eBay and the rest. In addition, "home-grown services" are also highly popular, like Malaysia's Mudah e-marketplace, Thailand's multimedia and entertainment portal Sanook!, and Vietnam's VnExpress news portal.

With ASEAN members likely to focus on investing in and upgrading their infrastructure and network, there should be more opportunities for Chinese telecom vendors, says Ashadi Cahyadi, senior research manager, telecoms, at International Data Corporation Asia/Pacific, a market research, advisory and analysis firm.

"Most of them are present in ASEAN," Ashadi adds. "For example, some operators in Thailand are customers of Huawei and ZTE."

Also, Thailand's local regulator has just awarded 3G licenses, which means more business for telecom equipment makers.

In Brunei, the current ASEAN chair, Huawei has won a four-phase end-to-end turnkey services project to create a network for over 40,000 subscribers. The first phase of the Brunei Next Generation Broadband Network project for Telekom Brunei is already completed.

In ASEAN, Ashadi says telecom network equipment will be the key driver for growth for Chinese companies. Other opportunities would be in consumer devices such as smartphones and tablets.

"As most of the mobile users in this region are price sensitive, Chinese smartphones still have some room to grow," Ashadi says. "However, most of the smartphone users are quite savvy in terms of value for money. So it will also be a challenge for Chinese smartphones to maintain their product quality and after sales services."

(China Daily USA 06/11/2013 page15)