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China Lays Out Feast for Foreign Telecom Firms
China opened exciting new prospects for foreign investment in its booming telecommunications sector on Tuesday by setting out a clear definition of "value-added" services for the first time.
China has promised to open the value-added sector to foreign investors when it joins the World Trade Organisation (WTO).
Telecoms regulations published in the People's Daily define value-added products as including Internet services and content, e-mail and voice-mail, databases, fax services and video conferencing, among others.
Also on the list is an item called "reselling of basic telecoms services", suggesting mobile and fixed-line operators could lease capacity to third parties, possibly including foreign-invested and private domestic firms.
Foreign industry analysts had feared the list would be more restrictive, and they welcomed the wide scope.
As part of its WTO commitments, China promised to allow foreign investment of up to 50 percent in value-added services, but had never before spelled out the range of those services.
Missing from the regulations are detailed guidelines governing foreign investment. China has pledged these in a separate document to be issued before it enters the WTO, which is expected to happen in the next few months.
But by providing a detailed list of value-added services, China has met an important condition of WTO entry and given investors a clearer idea of where they can put their money.
The rules are also significant because they allow private domestic firms to offer value-added services, busting a state monopoly over the sector.
The document divides the industry between "basic telecoms services" and "value-added telecoms services".
Under its WTO accords with the United States and Europe, China will open basic services to foreigners more slowly than value-added services.
Basic services include fixed and mobile telephones, data services, satellite services and leasing out or selling network capacity, according to the rules.
They also include "delivery of Internet and other public data networks" -- a clause analysts believe means control over Internet infrastructure, but not content.
Companies providing such services must be licensed by the central government and be at least 51 percent state-owned, the rules state. These restrictions, and the slower phase-in, are expected to limit foreign interest.
By contrast, value-added services are expected to become a magnet for capital from abroad, and were a key concession by China in its 13-year quest for WTO membership.
China promised to allow 30 percent foreign stakes in value-added services upon WTO accession, rising to 49 percent after one year and 50 percent after two years.
For Internet firms, China pledged even faster opening: 49 percent stakes on WTO entry and 50 percent the next year. There is no requirement for state ownership and the rules say the list of value-added services may be extended.
Other services to be treated as value-added include wireless paging and "online handling of data and transactions".
Nancy Leigh, a Hong Kong-based telecoms lawyer with Baker & McKenzie, welcomed the rules as an improvement over a draft that was more vague on the definitions of value-added services.
"Frankly, it's much better than the draft," Leigh said. "In terms of the various types of services, the draft could have been open to far narrower interpretation."
"China has covered the basic principles contained in the bilateral WTO agreement with the US," she said.
"All that's left -- and what everyone is dying for -- is the foreign investment clause."
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