Ma Jun

Communications today No 16, 2003

Promoting competition in the telecom industry is a consensus in various countries when they develop their telecom industry. Competition in this sector often has to face many difficulties. First is the incompleteness of the competition in basic telecom services. As there exist some bottleneck facilities, substantial competition is hard to be introduced in some links. Because of their unique industrial characteristics, the basic telecom services in general can only have limited competition, which could become an impediment for the telecom industry to introduce competition. Second is that market-oriented transformation of the enterprises engaged in vertical monopoly operations have been slow and that the subjects of market competition lack vitality. Third is that a rational regulatory control system is hard to be established in a short time and that the establishment and maintenance of competition rules lag behind market reforms.

Successful telecom competition reform in foreign countries includes a series of measures. First is the reform of market structure, which means that the market structure is reformed to restructure or increase market access through corporate breakup. Different countries have different market structural models and paths. Second is the reform of enterprises, which means that privatization is carried out to force telecom enterprises to improve operating efficiency. Third is the establishment of a rational regulatory control system, a system under which a rational division of labor is made among the policy-making departments, legally authorized independent regulatory control mechanisms, and industry associations.

In the past 10 years, China has made great progress in reforming its telecom industry by introducing competition mechanisms. At present, the diverse contradictions revealed in telecom competition are also a reflection that the reform of telecom competition needs to be further deepened. This article attempts to analyze the competition in China’s telecom industry in the perspectives of technological advance, corporate reform, market structure and regulatory control.

I. The Reform and Performance of Telecom Competition

In the past decade, the pace of the reform of China’s telecom industry has been very fast, and the contents of the reform covered market structure, enterprises and regulatory system. In 1993, China opened part of value-added telecom services. In 1994, it established China Unicom and the China Jitong. In 1997, China Telecom (Hong Kong) was listed on an overseas stock market. In 1998, China established the Ministry of Information Industry and realized the separation of government administration from enterprise management and the separation of government administration from capital operation. In 1999, China Telecom was broken up and China Unicom was expanded. In 2000, China Unicom was listed on an overseas stock market and China Netcom was established. In 2001, China Railcom was established. In 2002, China further reformed its market structure and the basic service market began to see competition between six enterprises. Intensified competition has produced a positive impact on the country’s telecom industry.

Service quality has markedly improved. In the early 1990s, the quality of telecom service was a hot issue in society, and was cited by the State Council as a key area to correct malpractice. Market competition has solved the problems the government has for long failed to solve. According to the 2002 survey results of telecom customer satisfaction published by the Ministry of Information Industry, the satisfaction index of fixed telephone customers for China Telecom and China Netcom were respectively 80.1 points and 79.8 points, and the satisfaction index of mobile telephone customers for China Mobile and China Unicom were respectively 76.5 points and 75.1 points. The customer satisfaction index for Internet access services for main operators was about 70 points.

The rates of telecom charges have constantly dropped.In the areas where competition has been introduced, service charges have all declined, though in different degrees. Competition in the area of value-added services is rather full, and the drop in service charges has been more tangible. The basic services are in general following government-set or government-recommended prices, and therefore, the price decline in this area has been subjected to the control of government regulatory policies. Even so, service charges in some more competitive areas still posted slight dips. For example, mobile telephone operators in most regions are following a flexible pricing format, and the basic service operators in IP telephone competition also greatly reduced the long-distance charges.

The introduction of new technologies and new services has been fast.Competition has forced operators to expedite their introduction of new technologies and new services so as to improve their competitiveness. Broadband access, IP telephone, short message, color message and other new technologies and new services have been developing rapidly thanks to operators’ vigorous promotion.

While China’s telecom competition has made marked progress, we should also see that telecom competition, especially competition in the area of basic telecom services, is still inadequate. Therefore, reform needs to be continued and deepened. In addition, the changes in competition environment such as technological advance, corporate reform and market opening also require that the policy governing telecom competition needs to be adjusted from time to time.

II. Telecom Technological Advance and Competition

The technological and economic characteristics of the telecom industry constitute the basis for telecom competition. The past practice demonstrates that local access networks enjoy certain natural monopoly and that telecom trunk networks in general can only introduce limited competition because of their huge investments. China’s regulatory control over the telecom industry has adopted the method of classified management, which ensures a strict control over market access to basic services and a rational competition in the telecom industry as a whole. As to value-added services that have potential competitiveness, the market access policy is rather liberal. In recent years, the rapid development of telecom technology has greatly increased the competitiveness of basic telecom services and produced major impacts on the market structure and regulatory control over the telecom industry. The roles of technological advance are mainly manifested in the follow areas:

1. The competitiveness of access networks has increased.

The mode of fixed access has diversified. Fixed access has developed from traditional narrowband to current ADSL, Ethernet and other broadband access, and to future fiber-optic access.

Wireless access has become an important competitive force to fixed access. Mobile phone, wireless local telephone and other wireless access have been developing rapidly and become an important mode of access for voice and low-speed data services. The emerging 3G, Wlan and other wireless broadband access services have become an important mode of high-speed data service.

Cable television access networks have become a potential competitive force to fixed access. Through technological transformation, cable television access networks can undertake television program transmission and telecom services simultaneously. The cable television access networks in the United States have become a main mode of broadband access for families.

Although different access networks have certain differences in functions and economics, they have a strong tendency of mutual substitution and competition. Therefore, access networks, which have long been regarded as bottleneck facilities, may well introduce certain degree of competition.

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