
Image from Casa Asia
This article, which I wrote in 2004 and updated in 2006, describes in a simpel and accurate way the telecommunications market in China. The current situation is a bit different regarding the Internet market and the “Xiaolingtong” services, which has practically disappeared, but the regulatory environment has not changed significantly. The Spanish version of this article was published on Casa Asia.
Abstract
This paper gives an overview on the telecom industry in China including Hong Kong, the British ex-colony.
China became in 2002 the world’s single largest telecom market. Understanding the complex and multifaceted internal mechanisms of the fast-changing and extremely competitive Chinese telecom scenario is essential for a foreign investor to succeed.
The former public monopoly has given way to an initial state-run competition: China Telecom and China Netcom in the fixed-line business, China Mobile and China Unicom in the mobile sector, as well as two minor players, China Satcom and China Railcom.
As a result of China’s entry to the World Trade Organization (WTO) in 2001, a new regulatory regime is being established and foreign operators are gradually allowed to access the market.
After the last explosive-growth years, the main market trend is the stabilization of the growth rate.
1. INTRODUCTION
The Chinese telecommunication sector’s growth rate was about 20% between 1997 and 2002. This is the double of China’s GDP (Gross Domestic Product) rate [1] and is the strongest and fastest growth in world in this line of industry [2].
China fixed-line and mobile operators have invested an average of 25 billion American dollars [1] on network infrastructure in the last years, more than all western European carriers together [3]. As a result, with 1.3 billion citizens, China owns the world’s largest fixed-line and mobile network in terms of both network capacity and number of subscribers [4].
Only one out of ten Chinese citizens had a phone five years ago. Today more than one out of three have a fixed telephone subscription and more than 1.25 million cellular subscribers sign up in China every week. In five years, there will be more than 950 million fixed and mobile subscriptions, three times more than the entire population of the United States (US) [3].
China’s accession to the World Trade Organization (WTO) on December 11th 2001 resulted in the gradual opening of the telecom services market to foreign companies. Besides, Beijing’s hosting of the 2008 Olympic Games and Shanghai’s 2010 Universal Exposition will create great business opportunities for both Chinese and foreign companies [4].
2. HISTORICAL OVERVIEW
Before 1994, the Ministry of Posts and Telecommunications (MTP) provided telecom services through its operational arm, China Telecom. Pressured by other ministries and dissenting customers, the Chinese government officially started the telecom industry reforms in 1994 by introducing a new competitor: China Unicom. However China Unicom could hardly compete with the giant China Telecom [5].
In 1998, due to a ministerial reorganization, the MTP was replaced by the new Ministry of Information Industry (MII). The MII took two large scale reshuffling actions targeting the inefficient state-monopoly. In 1999 the first restructuring split China Telecom’s business into three parts (fixed-line, mobile and satellite). China Mobile and China Satcom were created to run, respectively, the mobile and satellite sectors but China Telecom continued to be a monopoly of fixed-line services. The second restructuring in 2002 split China Telecom geographically into North and South: China Telecom – North kept 30% of the network resources and formed China Netcom (CNC) and 70 % of the resources were retained by China Telecom – South or simply the new China Telecom [5].
These resources consisted of a 2.200.000 km. long [6] nation-wide optical network, based on ATM (AsynchronousTransfer Mode), SDH (Synchronous Digital Hierarchy) and DWDM (Dense Wavelength Division Multiplex) technologies, [3] and several submarine cables, in particular with the US, Japan, Germany and Russia.
Parallel to this double fission, the telecommunications division of the Ministry of Railways (MOR) established a new actor in 2000: China Railcom [1].
To sum up, in the last decade the Chinese telecom industry has changed from a state-run monopolistic structure to state-run “oligopolistic” structure.
3. REGULATORY ENVIRONMENT
The MII is responsible, among other duties, for elaborating regulations, allocating resources, granting licenses, supervising the competition, promoting Research & Development (R&D) and service quality as well as of developing tariff rates [4] [7]. The MII has built up a nation-wide regulatory system composed of Provincial Telecommunications Administrations (PTA) with regulatory functions within their respective provinces. A number of other significant institutions also influence China’s telecom picture such as the State Development and Reform Commission (SDRC) [4].
Following its WTO accession, China is accelerating the establishment of a legal framework for the telecom industry. This framework includes adopting a western-style Telecommunication Law and setting up an independent regulatory and arbitration body to deal with the telecom operators [2]. None of these objectives have been yet truly accomplished:
On the one hand, Telecommunication regulations are still in an infant state. The Telecommunication Law is still expected to appear although the government promulgated the People’s Republic of China (PRC) Telecommunications Regulations in 2000 and the Regulations on Foreign Investment in Telecom Enterprises (See next section) in 2001[4].
On the other hand, given the close relation between the MII and the state-owned Chinese telecom companies, the MII is far from being a truly independent telecom regulator. As an example, most senior executives of the Chinese telecom companies have links to the MII, the Government or the Party.
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