Alcatel -- one of the largest suppliers of optical networking equipment in China -- will pay US$312 million to increase its stake in Shanghai Bell and then merge all of its China operations over two years, executives said.

"It's a form of consolidation," Alcatel chief executive officer Serge Tchuruk said.

Alcatel would buy 8.35 per cent of Shanghai Bell from the Belgian government and 10 per cent plus one share from China -- giving Alcatel a controlling 50 per cent plus one share stake in Shanghai Bell, to be renamed Alcatel Shanghai Bell, he said.

The Ministry of Information Industry (MII), China's telecoms regulator, will control the Chinese stake in Alcatel Shanghai Bell, which will operate as a majority foreign-owned firm, not a joint venture.

"This is going to be run as one single company and not as a joint venture with requirements from both sides," Tchuruk said.

After it assumes its new legal structure -- which he said required approval from the State Council, China's cabinet, and the Foreign Trade Ministry -- Alcatel Shanghai Bell would be able to list overseas, Tchuruk said.

However, "it's too early to tell when and if that will happen," he said.

A US$2 billion company

"The first step will be to take the big pieces and to put them together," said Ron Spithill, Alcatel's Asia-Pacific president.

That meant first merging Alcatel China with its joint ventures, Shanghai Bell and Shanghai Bell Alcatel Mobile Communication, into Alcatel Shanghai Bell.

Then Alcatel would merge its remaining joint ventures one by one into Alcatel Shanghai Bell over two years, Spithill said.

The merged company would have combined revenues of US$2 billion in 2001, including US$1 billion in Shanghai Bell's expected sales in 2001. Alcatel's other units and joint ventures in China are also expected to post US$1 billion in sales in 2001.

Alcatel would appoint the chief executive officer of Alcatel Shanghai Bell, which will create 2,000 jobs, mostly for Chinese engineers, over three years. The Chinese side would appoint the non-executive chairman, Tchuruk said.

By giving it full access to the patents and technologies of Alcatel's global operations, Alcatel would turn Alcatel Shanghai Bell into a more important research and development base for the parent company, he said.

"The Chinese entity will shift from a technology absorption mode to technology creation mode," Tchuruk said.

Shanghai bell an early venture in China

The executives declined to give a breakdown of how much of the US$312 million would be paid to each Shanghai Bell partner.

A Belgian government official said on Friday Alcatel's Belgian subsidiary paid an initial 81.80 million euros (US$91.76 million) for its 8.35 per cent stake and would pay another 8.43 million to 27.27 million euros (US$7.51-24.28) depending on how much the shares from China Huaxin Telecom cost.

The firm was one of China's earliest communications system makers and was set up in 1984 as a Sino-Belgian joint venture. It mainly makes switches and other telecoms equipment.

Alcatel bought into the company in 1987 and held a 31.65 per cent stake.

Shanghai Bell won a US$157 million contract in May to supply equipment to a massive new mobile phone network for China Unicom Group based on the CDMA standard.

Alcatel's shares closed at 16.20 euros (US$14.42) on Monday.

(China Daily October 24, 2001)