BEIJING-China Telecom is still very much a monopoly carrier in China, but change is on the horizon.
By year-end, the new Ministry of Information Industry will have concluded its massive restructuring and finally may be ready to accept a sweeping new telecom law restricting its function to regulation and letting newcomers take on China Telecom.
While foreigners still are barred from direct involvement in operating telecom networks, they slowly are making inroads. Since China Telecom (Hong Kong) Ltd. was listed on the Hong Kong and New York stock markets in 1997, foreigners have been able to buy shares in an operator representing 31 percent of China’s cellular market.
And finally, China United Telecommunications Corp. (Unicom) is confident its 50,000-line local network in Tianjin will be interconnected with China Telecom’s main grid in July.
Conditions ripening
Wu Jichuan, head of the new MII, explained in an interview a year ag, that if foreign operators wanted to make money in China, certain conditions would have to be met:
Loss-making postal operations must be separated from telecommunications. This now has been realized with the establishment in March of the State Postal Bureau.
The government could not allow foreign operators to charge the high installation fees currently charged to subscribers.
Shen Hongjia, retired professor of the Shandong Mining College, has calculated that up to 48 percent of all investment in telecom during the last five years has come from subscribers’ initial installation fees, and he argues in a recent story in the Reform News that the subscribers thus should be made shareholders of the telecom operator. Meanwhile, installation fees continue their downward slide.
The gap between the country’s East and West should be narrowed.
A telecom law must be enacted. This is a very complicated issue as the law would need to stipulate the conditions under which new operators will be interconnected to China Telecom’s main network and would also have to clarify to what extent foreigners could become involved in China’s telecom sector. The telecom law is being drafted and debated, but so far no timetable has been set for its enactment.
Telecom charges, which up to now have been set by the government, would have to be liberalized.
The Chinese government refuses to open the telecom sector to foreign participation as a condition for accession to the World Trade Organization. The year 2010 has been mentioned as a possible date for liberalizing the telecommunications market, but many analysts are confident it will happen sometime during the next five years.
Foreigners creeping in
Until deregulation finally arrives, foreign companies still can use roundabout ways to nibble at the fringes of China’s telecom market. China Telecom (HK) Ltd.’s stock listing gave foreigners a first chance to invest in a major Chinese telecom operator. Moreover, the Chinese government gave assurances the company would remain the only listed window for state-run mobile phone services.
In the biggest initial public offering (IPO) outside Japan in 1997, the company raised US$4.5 billion. At the time of listing, China Telecom (HK) owned mobile networks in Guangdong and Zhejiang provinces. But at the end of a six-month moratorium on injecting new assets, it took over the Jiangsu Mobile Communications Co. on 28 April for US$2.9 billion. The acquisition increases its market share from 25 percent to 31 percent.
Another method used by foreign operators to get a piece of the action is to set up joint ventures with local partners, who in turn fund telecom projects for the second and third operators for a fixed return.
Unicom’s Tianjin network is backed by Tianjin Global Communications & Construction Investment Co., which in turn is partly owned by Sprint Corp. and Sumitomo. Operating revenue eventually should end up in the hands of the two foreign partners. Interconnection is planned for 18 July, more than one year after the network’s launch. Four years after Unicom’s inauguration, the company barely has managed to grab two percent of the cellular market and three percent of the paging market.
Dutch telecom operator KPN N.V. chose the China Electronics System Engineering Co. (CESEC), affiliated with the Chinese army, as a partner to set up a joint venture in February. CESEC and China Telecom are partners in third mobile phone operator China Telecom Great Wall. Through its joint venture with CESEC, KPN hopes to get involved in setting up local telecom networks.
Break-up of China Telecom
One segment of the telecom sector that already has been liberalized to a large extent is paging. Beijing alone has 140 paging companies, leading to fierce competition, diminishing profits and the emergence of unqualified service providers.
China Telecom plans to merge the paging operations of the provincial posts and telecommunications administrations into one holding company, to be set up in the second half of 1998. Paging probably will be one of the first telecom sectors welcoming direct foreign involvement.
Monopoly under fire
Voices calling for an end to the monopolistic telecom sector are growing louder. Zhang Shuguang, a researcher at the Economic Research Institute of the Chinese Academy of Social Sciences, argued in the Reform Daily in June that the telecom monopoly should end. He cited examples of wrongful billing, arbitrary reduction of pager prices and the problems Unicom has had interconnecting its cellular network. End the monopoly, and competition will bring prosperity through lower prices and better service, Zhang concluded.
