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Revamp Key for Beleaguered Telecom Industry
China Telecom, the predominant telecommunications operator in China, has been persistently in hot water during the past few months.
Early this year, the telecom giant conducted a wholesale shake-up across the country but was soon accused of taking advantage of reform to line its own pockets.
Consumers complain that the monopolistic position China Telecom enjoys makes it willing to sacrifice their interests just to grab money and they want the monopoly broken up.
The public call for this break-up is in line with central government's efforts to invigorate the economy by reforming industries that were traditionally monopolies, such as telecommunications, power, aviation and railways.
In the draft of the 10th Five-Year Plan (2001-05), the blueprint for the country's economic and social development over the next five years, it is categorically stated that industrial monopolies must be broken up and competition ushered in.
As an initial monopoly-busting measure, the State established a new telecom company -- China Unicom -- in 1993 to compete with the former China Telecom.
It also divided the former China Telecom into two parts a couple of years ago -- the current China Telecom that operates the fix-line business, data transmission and Internet access services, and China Mobile that focuses on mobile communications business.
In mobile communications, China Unicom has gradually grown up and had a clear impact on China Mobile. It currently holds 22 per cent of the mobile communications market.
The beneficiaries of market competition are consumers, who enjoy better services with less expenditures.
In the fixed-line operation and other businesses besides mobile communications, however, things are not so promising.
While smaller rival China Unicom offers local fixed-line telephone service in very limited parts of China -- and new entrant China Railway Communications Corp also has a fixed-line licence -- China Telecom holds a monopoly-like grip on China's telecommunications.
It owns about 80 per cent of the country's telecom network capacity and controlling shares in the fixed-line telecom business, data transmission and Internet access services.
It occupies more than 99 per cent of the market with 157 million consumers and China Unicom has less than one per cent.
That is why people are so furious about its charging adjustment and fiercely advocate for a break-up. They feel the price is controlled by an enterprise that has an unrivalled market position.
And this call to smash the monopoly coincides with remarks from Ministry of Information Industry officials. They have repeatedly expressed their determination to follow the line of the 10th Five-Year Plan and reform the telecom sector to give consumers appreciable benefits.
In these circumstances, it is unavoidable that reforms designed to introduce corporeal competition to improve the efficiency of the telecom sector will come out soon.
With the rough direction of reform set down, however, the precise method of breaking the monopoly and introducing competition remains a Sphinx's riddle that has puzzled policy-makers and sparked hot debate among economists, officials and the public.
They have argued about whether it is appropriate to split China Telecom into various business units or regions.
Those who object to this idea believe that China's pending entry into the World Trade Organization will open up the domestic telecom industry to foreign investors. If China Telecom is further dismembered, its competitiveness, which is a cause for concern even now, would be further damaged and the company would face the danger of being squeezed by incoming foreign telecom giants.
They argue that China Telecom should remain intact and internal reforms should be conducted to regulate the operation and pricing of the company.This would improve the efficiency of the company and the interests of customers would be guaranteed.
But this idea only sounds good, some experts claim. Since the monopolistic position of China Telecom has been maintained for years, it lacks the incentive to conduct serious internal reforms.
And with its monopoly preserved, it is hard to believe it could improve its efficiency significantly and be able to face up to foreign competition in the future.
Those who advocate splitting the company up have put forward one plan to divide the State giant into three firms offering local, long distance and data transmission businesses respectively.
But it will be a herculean task to separate the local and long distance businesses, which are naturally entangled. Besides, local call business is the basis for other businesses and its monopoly will possibly continue after splitting.
Another plan would be geographical, with one company in Northern China and one in the South.
In this way, however, the new telecom companies will still be the market leaders in the respective regions.
With such plans still the subject of heavy debate, Zhou Qiren, a telecom expert from Peking University, offers an alternative.
He said the test of whether it is appropriate to split China Telecom should be whether the split can really introduce competition.
He warned that it should not rush to split the giant. If real competition cannot be realized, reckless division will only incur huge costs.
To usher in competition, which should be the ultimate goal of any market reforms, the State should give preferential policies to encourage more operators to enter the field and challenge the old market big brother.
With the gradual opening up of the market to more operators, competition could be hopefully fierce enough to save our beleaguered telecom industry.
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