AsiaInfo Plows IPO Gains into China ‘Net

By JONAH GREENBERG

(Virtual China News -- April 3) James Ding, chief executive officer of AsiaInfo Holdings Inc. (ticker: ASIA), the China-based systems integrator and Internet software company, caught on to the Internet far ahead of the pack.

Ding says it's "funny" that the Internet has now become an important commercial force in China and globally -- but he says "funny" in the way a precocious high-school student might refer to classmates flocking belatedly to a new style of dress he patented weeks earlier.

"Before 1995, if you were talking to a venture capitalist about the Internet, he would say 'What is that? Go away!', Ding recalls with a grin. "We've watched that industry grow. It's just so funny, because now it's a hot topic for everyone."

Those skeptical investors were no doubt surprised to find themselves scrambling to buy AsiaInfo shares during its initial public offering on the NASDAQ exchange on March 3. That debut saw ASIA's share price close over 400 percent higher than its opening price of $24.

Based in Beijing, AsiaInfo is a systems integrator that helps design Internet backbone networks for large government-owned network operators such as China Telecom and its provincial satellite units. Backbone networks are high-grade fiber optic networks that carry Internet traffic.

Another core area of business for the company is Internet software. AsiaInfo has three main software products, consisting of a messaging and e-mail product called AsiaInfo Mail Center (AIMC), and two types of billing and customer management software -- one that can be used by ISP's with regular Internet customers, and one designed for ISP's with wireless Internet subscribers.

AsiaInfo announced last week a sale of its messaging software to 21cn.com, one of China's leading Web portals. The company's messaging software has also received the nod of approval by high profile Web companies like Chinadotcom, which uses it for their portals in mainland China, Hong Kong, and Taiwan, Ding said.

AsiaInfo's shares have been dropping in recent weeks, however. While an overall dip in confidence in high tech and Internet stocks accounts for some of ASIA's recent drop, so surely do new concerns about the safety of the China Internet market, until recently a blazing hot sector.

New government regulations affecting the development of Internet and telecommunications networks in China are being announced almost weekly in sometimes contradictory ways. It is shaking investor confidence as the pronouncements seem to reflect the inconsistent, and sometimes even arbitrary, inner workings of Beijing's top policy makers and key ministries.

Supported by the Market

Yet Ding describes China as the key to his company's success and, indeed, AsiaInfo can credibly claim to be working its government connections at least as well, if not better, than most of its competitors.

The company has won the systems integrator contracts for all the major Internet backbone networks in China so far, including China Telecom's national backbone network ChinaNET, and China Unicom's national backbone network UniNET. At a time when China's three largest telecommunications operators, China Telecom, China Unicom, and China Netcom, are preparing to spend US$1 billion on building out the nation's backbone networks, government contracts in China could prove very profitable to whichever systems integrator wins them.

"We all believe there will be some world class companies that will be born and supported by [the China] market alone," Ding said last week in an interview with Virtual China. "They will become world class companies based in China, very much like Hewlett Packard and IBM are based in the U.S. because they have a strong market support in the U.S."

Ding travels around New York with an entourage of two: Michael Zhao, chief strategy officer of AsiaInfo, and Leslie Llewellen, the company's Alexander Ogilvy PR representative. Having just visited his new friends at Morgan Stanley Dean Witter (the lead underwriter of the AsiaInfo IPO), where he attended a closed-door telecommunications conference, Ding dropped by the Virtual China offices to answer some questions.

Local Support

Perhaps the ace up AsiaInfo's sleeve is its closeness to its market, Ding suggests. He describes the kind of simpatico sensation that is shared between mainland Chinese people in the business world.

Executives at China Telecom, or other state-owned network operators, might find it a great relief that they are dealing with their own kind when they deal with AsiaInfo executives. "We have the same background, we talk the same language, and enjoy the same culture. So [our customers] gradually take it for granted that we're a Chinese company."

If another company was staffed with foreigners -- or even overseas Chinese from Hong Kong or Taiwan whose Mandarin is not quite up to snuff -- they might run into boundaries, Ding suggested. "If you can't communicate freely, it sometimes reminds them 'okay, we're dealing with a foreign company now.'"

For this reason, Ding and Zhao describe AsiaInfo's strength as "local support." Last week the company announced a contract agreement with China Netcom to design and implement an IP (Internet Protocol) network to be placed on top of existing fiber optic cables that make up China Netcom's backbone network.

Also last week, the company announced a contract with China Unicom, which bought five million licenses for AsiaInfo's customer management and billing software.

Relationship Kind of Approach

As it happens, Edward Tian, a co-founder of AsiaInfo and still one of AsiaInfo's largest shareholders is now the CEO of China Netcom. Does that give AsiaInfo an advantage over other bidders for China Netcom's business?

Not at all, says Ding, who argues that AsiaInfo has gotten all of its contracts in the above-board fashion that befits a world-class corporation.

"Even before Edward ever joined [China Netcom], we had a mutual understanding that AsiaInfo was not going to take advantage of Edward's position there," he said. "China Netcom has multiple layers of technical opinions and multiple decision-making processes. We've never had any players complaining that there's any unfairness," Ding said, also pointing out that they enjoy just as many contracts with China Telecom and China Unicom, companies that are not run by former AsiaInfo executives.

Still, Ding concedes, the company's relationships with its customer companies are crucial to the success they have enjoyed so far.

"Some domestic companies are more toward the relationship kind of approach, and some of the U.S. companies have too much confidence in their technology. But actually, if you want to do business successfully in China, both are equally important. You cannot just say my product is the best, either use it or leave it."

In the S-1 prospectus that AsiaInfo filed with the Securities Exchange Commission (SEC) on the eve of their IPO, the Chinese government's capricious regulation of the Internet was mentioned as a key risk factor for the company.

Couldn't Beijing's vigilant attitude about the flow of information on the Internet become a stumbling block for AsiaInfo's road ahead?

Ding says no, and he uses TV as an example: "Content of TV in China is probably the most tightly controlled area of content in any medium in the country -- publishing or newspaper -- yet you never see a slowdown of TV viewers, or a slowdown in the TV infrastructure development," he said.

Tough Sell

Instead, Ding cites economic barriers in China, such the inability of most people in China to afford a PC or Internet access. "But for some content providers," he concedes, "they may need to watch what they do and be a little bit careful and more sensitive about what they are doing."

Ding says that when he tried to talk to talk to China Telecom in 1994 to get them to build out Internet backbone networks, they ignored him because the Internet was widely considered a "free" medium at that time, and was mostly used by academics.

"We are not in the charity business," they told him. At that time there were very few ISP's even in the U.S., so it was very difficult for him to convince them that people would one day be paying to get access to the Internet.

"They said 'No, no, no, we don't think so,'" Ding said with a grin. "So that was a very tough sell in the beginning."

Ding once reminded me of an old Chinese saying -- that he who is the last to laugh, laughs the hardest. It's still too early to say who will get the last laugh in the China's increasingly intense Internet competition. But Ding's success so far surely comes from his having started to laugh first.

To reach Jonathan S. Landreth: jslandreth@virtualchina.net