BEIJING-China is still set to enter the World Trade Organization (WTO) by the end of the year. Upon accession, foreign operators will be permitted a 25-percent share of Chinese mobile phone operators, increasing to 49 percent three years after accession. The long wait will finally be over.
But China Unicom decided not to go ahead with the construction of a narrowband CDMA network, waiting instead for the availability of third-generation (3G) cdma2000 technology.
The opening of China’s mobile telephony market will take place two years ahead of the schedule hammered out by American and Chinese negotiators in November last year to pave the way for China’s accession to the WTO. The advancement is the result of negotiations between the European Union (EU) and China, concluded in May.
Under WTO rules, concessions given to one party will be applied to all WTO member countries. For U.S. companies to enjoy the benefits, the country’s Senate still must pass permanent normal trade relations (PNTR) with China, following passage of a bill in the House of Representatives on 24 May. A vote in the Senate is expected by the end of July.
EU Trade Commissioner Pascal Lamy fought hard to obtain a 51-percent foreign majority in mobile-phone operating companies, but the Chinese government refused to budge from its position of a 49-percent maximum foreign ownership. However, 25-percent foreign investment will be allowed immediately upon China’s accession to the WTO, increasing to 35 percent after one year and 49 percent after three years.
China has also agreed not to restrict operations to individual cities, but to allow operations between Chinese cities, which covers more than 75 percent of current traffic, according to an EU briefing paper on the results of bilateral negotiations with China.
For now, China has only two mobile operators: China Mobile and China Unicom, limiting foreign operators to those two companies as possible joint venture partners. Alliances will probably form on a regional basis.
At the end of May, China Mobile had 47.81 million subscribers and China Unicom had 9.79 million, bringing the national total to 57.6 million. During the first five months of the year, the former added 9.79 million new mobile phone customers; the latter signed up 4.55 million customers, demonstrating the momentum China Unicom is gaining.
CDMA setback
China Unicom launched an initial public offering (IPO) on the New York and Hong Kong stock exchanges at the end of June, raising a total of US$5.65 billion. It is the biggest-ever listing by a Chinese company. Originally planned to raise money to build a second-generation CDMA network with a capacity of 50 million users and a cost of 100 billion yuan (US$12.09 billion), Unicom’s plans suffered a setback when the Chinese government announced in early June it preferred to wait for the rollout of a 3G CDMA network.
A basic 3G cdma2000 system test should be completed by the end of the year, with the first commercial use expected in 2002. Eight Chinese mobile-phone producers signed research and development agreements with Qualcomm to develop cdma2000 products. China Unicom’s February agreement with Qualcomm to develop narrowband CDMA is being annulled.
The successful IPO proved scrapping the narrowband CDMA network did not overly worry investors. They are still convinced the Chinese government will firmly support the fledgling second operator following China’s entry to the WTO and the opening of China’s doors to foreign competition in the operating field.
Beijing said it would spend 5.3 billion yuan (US$641 million) on its total 3G network development, with 300 million yuan (US$36 million) earmarked for this year.
