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China Braces for Cut-throat Telecom Competition after WTO
New operational rules and market-oriented reforms can be expected in China's telecom sector in anticipation of China's upcoming WTO accession.
They are expected to range from communications license distribution to use-fee adjustments.
The recent market-opening deal with the European Union, after five final days of feverish negotiations in Beijing, means China has concluded market-access agreements with all but a handful of countries, and its 14-year effort to join the World Trade Organization is near an end.
The telecom market, one of the country's most promising sectors, will eventually be opened to foreign investors, even though domestic players are not believed strong enough to compete with their multinational partners.
Regulation preparations
Industry experts said the most important thing for the administration to do is adjust its current industrial policies to make them suitable to international practice and the great changes expected to come with WTO accession.
Information Industry Minister Wu Jichuan said early this year that the Telecommunication Regulation, the sector's top legal document, has been drafted and submitted the State Council for approval.
Regulations ranging from telecom and Internet market access to radio frequency controls, are also under way.
However, the official version has yet to be announced.
Investors, especially foreign venture capital suppliers, report they are confused by China's current policies concerning investment involving Internet content and service providers.
Although many of the country's dotcom companies have won capital support from foreign investors, the official stance is still one of "prohibition."
China will allow foreign investment in the country's Internet content and service sector when the country joins the WTO.
The necessity of new regulations also grew from within the sector.
The relationships among the country's communications service providers have become a big headache for the Ministry of Information Industry (MII) because disputes between them are increasing nationwide.
"We have designed an applicable procedure to deal with these problems,'' information Vice-Minister Zhang Cunjiang told Business Weekly.
"We are confident we can deal with this problem, otherwise, a environment with fair competition cannot be maintained.''
Zhang said that the ministry is also drafting a law which will require all telecom companies to take responsibility for providing universal service.
Universal service means the telecom operators must cover remote areas where communication services are needed.
At present, China Telecom and China Mobile offer universal service across the country.
Market-oriented reforms
The restructuring of China Telecom began the sector's market-oriented reforms. The first year of the process resulted in negative growth in network infrastructural investment in 1999.
The China Telecom monopoly has been divided into three independent telecom companies, China Telecom in the fixed-line business, China Mobile Communications and China Satellite Communications.
China Unicom, the country's second largest mobile communications operator, has gained the full support of the government.
"We will continue to provide policy support to China Unicom in an effort to create a competitive domestic market,'' said Zhang.
The vice-minister emphasized that the government should grant preferential policies to cultivate fledgling players during the initial stages of the market's opening-up to outsiders.
"The timing of favourable policy dismissal depends on the formulation of a reasonable competitive environment, for example, when China Unicom's mobile subscriber use base is similar to China Mobile's,'' said Zhang.
China Unicom has only 5.23 million mobile phone users, compared with 40 million at China Mobile.
China Unicom, after the split-up of China Telecom, has become the country's only full-range telecom service operator, including fixed line, paging, GSM and CDMA mobile phone communications and Internet access service.
"The biggest support from the government was its authorization for China Unicom to construct and operate a CDMA network,'' said Zhang.
China Unicom expects the designated nationwide CDMA network to compete with China Mobile in the area of mobile communications.
Zhang did not dismiss the possibility of licensing more telecom companies in the mobile communications service sector.
"In the long run, it is impossible to have only two mobile communications operators in China's market,'' said Zhang.
"But, the government has not announced any plan to grant more licenses in the near future.''
It's widely rumored that both China Telecom and China Netcom will be allowed to provide mobile communications services.
As the commercialization of third-generation telecom technology (3G) nears, the selection of 3G operators has been on the MII's work agenda.
The British Government recently auctioned the licenses of 3G operations and earned a total revenue of more than US$30 billion.
The ministry has set up an expert panel to research and study how to distribute China's 3G licenses. The panel headed by Su Jinsheng, director of the Telecommunications Management Bureau.
Zhang said that the government will announce the final 3G operators during the second half of 2001 and the first half of 2002.
"The selections process is still under discussion, but current telecom service operators are likely to be licensed,'' said Zhang.
Fees for communications services, including fixed-line prices and two-way mobile communication fees, will also be adjusted in the near future, according to Zhang.
WTO-required opening-up
China reportedly will phase out all geographic restrictions for paging and value-added services within two years, mobile-cellular services within five years and domestic wireline services in six years.And China's key telecommunications services corridor in Beijing, Shanghai, and Guangzhou, which represents approximately 75 per cent of all domestic traffic, will open immediately upon WTO accession to all telecommunications services, said a report released by the US Trade Office .
China will allow 49 per cent foreign investment in all services, and will allow 50 per cent foreign ownership for value added services within two years and paging services in three years.
The Sino-EU deal reportedly states that China will open its mobile telephony market two years ahead of schedule. Upon accession, foreign operators will be permitted a 25 per cent share, rising to 49 per cent three years after accession, according to foreign news agencies.
All conditions made to the US and EU automatically will be enjoyed by all other members of the World Trade Organization.
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