China's telecommunications sector has implemented two major fee reductions this year in an aim to bring telecom levies closer to market and stimulate consumption, according to report of China Daily.

Analyses of the initial results indicate that price reduction has presented a both pleasing and worrisome picture.

First of all, the pulling effect of the first fee cut is apparent.

The price adjustment plan initiated in March of this year includes charge slashes for telephone line installation, Internet account and telephone rates, mobile network access and the cost of leasing international lines by Internet service providers (ISPs) and other Internet-related enterprises.

Major cuts in telephone line installation and mobile network access, which were reduced by an average of 57 and 45 per cent respectively, has greatly spurred consumption.

According to statistics from the Ministry of Information Industry, in the first eight months of this year, the number of fixed-line users soared by 14 million to top 100 million, and that of mobile phone users rocketed by nearly 11 million to reach 36 million.

The year-on-year decline in fixed-line user growth, which haunted the telecom sector in recent years, was thus reversed.

Price reduction has also accelerated the process of telephone popularization in rural areas. Rural telephone users, increased by 48 per cent over the same period last year, contributed 45 per cent to the national figure.

In October, the ministry announced a second telecom fee reduction. The Internet access fee was slashed by 1 yuan to 4 yuan (US$0.48) per hour; telephone charges for Internet use were cut by half and rental rates for analogue electric lines, digital data lines and digital electric lines were cut by 30 per cent.

The second price cut is widely recognized as a great step forward for the development of the country's Internet industry as it will lure more surfers and enable ISPs to expand business.

In the first six months of this year, the number of Internet users hit 4 million, up from 2.1 million last year.

This rosy side of the picture is that the price cuts will also encourage China's telecom enterprises to expand investment on telecom facilities.

However, in other areas, the result of the two price cuts has demonstrated little or evens adverse effects.

Price adjustments so far have failed to drum up more dials as expected. In the first eight months, there had been no distinct increase in either international calls or calls to Hong Kong and Macao despite the average rate cut of 25 per cent.

Worse, drastic rate cuts will affect telecom revenue and curtail investment growth.

According to ministry statistics, telecom revenue is expected to be reduced by around 8 billion yuan (US$963 million) this year. Minister Wu Jichuan estimated that investments for the entire year could reach 120 billion yuan (US$14.5 billion), down 20 per cent from last year's 150 billion yuan (US$18.1 billion).

The phone service industry will be affected most by the rate cuts. Revenue from telephone installation fees and extra charges will drop by 16.7 billion yuan (US$2 billion).

As a result, the phone service industry will witness a decline of fixed-asset investments in 1999 for the first time in several years.

Heavy economic losses will also make the telecom sector lack the money to expand business and build infrastructures.

Although the ministry acknowledged that increasing consumer complaints on hefty fees have contributed to the rate cuts, the ministry did not meet all consumer demands.

Many continue to ask for price cut on phone installation fees and that two-way charges for cellular phones be abolished and Internet access fee be further slashed.

Margins for further price cuts still exist in some areas. For example, the current Internet access fee is still too high and needs to be reduced further.

Surveys conducted by the China Internet Network Information Centre indicate that in some Chinese cities, "netizens" have paid about one-third of their monthly salaries to gain Internet access at home.

The current level of Internet access fee, 4 yuan (US$0.48) per hour, is higher than the cost of either the telecom sector or ISPs, who should not consider the Internet access fee as the primary way to make money.

They should instead make profits through other channels such as exploring new business areas and improving service. Otherwise, the Internet will remain only attainable to the few rich.

The telephone installation fee has proven to be an effective way to raise funds for the expansion of China's telephone industry during the past 20 years.

However, as government investment and market accumulation currently fall short of demand, new ways of development in conformity to market rules must be found. For example, it might be a good idea for the phone industry to allow consumers to participate in its construction through holding shares.

The urgency for the phone industry to tap new methods for development is also manifested in the fact that there is little space for further cuts in domestic phone rate as it is largely conditioned by telephone line construction costs and low efficiency of the companies involved.

While weighing the possibility of further telecom fee cuts, the telecom sector should understand a price cut is not the panacea for either fund shortage or competition.

As the call for the further opening of the sector grows louder, competition began to be introduced into the sector. Gone are the days when monopolization, unfair competition or preferential policies could lead to substantial returns to the sector.

Improving service, expanding the service scope and launching new businesses items which better suit people's increasingly diversified demands should be the sectors' new goals.

Intensified competitive environment also requires companies in the sector to upgrade their management and adjust investment.

Earlier this year, in its restructuring plan to break up monopolies and introduce competition, the State resolved to create four national companies involved in fixed line telephone, mobile phone, paging and satellite services out of China Telecom, the national monopoly operator.

Hopefully upon completion at the end of this year, the reform will usher in a better telecom market with cheaper price and higher quality service so consumers can truly benefit from advanced technology and products.