Virtual China: Information Technology - Press Reviews, April 7, 1999

Weekly Press Review

April 7, 1999

A number of recent developments in China's telecommunications market have stepped up the pace of reform and opening in the sector and are setting the stage for broader shifts in institutional influence over the future of the country's IT and communications industry.

China Business Times reported last week that the State Development and Planning Commission approved the formation of a third telecom carrier to challenge China Telecom and Unicom. The company is to be jointly owned by the Academy of Sciences, the Ministry of Railways, the Shanghai municipal government and the Broadcast and Television Administration. Increased competition has widespread popular support. Xinhua News Agency reported that a recent nationwide poll found 72% of respondents felt China Telecom's monopoly should be broken and competition introduced. Zhu Rongji has expressed interest in separating China Telecom from the MII and making the MII a purely regulatory body. Such a change would help to level the playing field but the MII's Minister Wu Jichuan has resisted such talk, suggesting that the already announced break up of China Telecom into four companies (paging, mobile, fixed-wire and satellite businesses) already does enough to enhance competition. Minister Wu announced last week that Administrative Regulations on Telecommunications would be enacted before July "so that market practices will be standardized in a lawful manner." The new regulations are expected to include formal guidelines for partial foreign ownership within the telecom sector. U.S. Commerce Secretary William Daley, in China last week for WTO negotiations, has pressed for the approval of majority foreign ownership but both sides seem to be settling on 35% for the time being.

Reuters reported last week that the State Council has given its approval for Unicom to establish a nationwide CDMA mobile telephone network, meaning perhaps hundreds of millions of dollars in contracts for US based firms where CDMA is a popular standard. Unicom, however, has ongoing problems with existing international investors in China-China-Foreign (CCF) joint-ventures, a scheme which in the past allowed a legal loophole around prohibitions on direct foreign investment but is now forbidden. Unicom has frozen about 16 million dollars in shared profit payments due foreign CCF investors. Companies effected by payment freeze include Siemens, Deutsche Telecom, and Bell Canada. Reuters reports that at least 8 of perhaps 40 companies involved in CCF investments had sought council to consider possible litigation against Unicom. Unicom is apparently interested in buying out its CCF investors although company representatives say the profit payment freeze is temporary while investment structures are renegotiated.

In a sign of new possibilities for western investors, ATT announced it has signed a framework agreement with The Shanghai Post & Telecommunications Administration and Shanghai Information Investment Inc. to offer Internet-based (IP) telephone in Shanghai's booming Pudong development zone. The framework agreement includes a feasibility study prior to any specific working agreement. "This agreement will enable for the first time a foreign partner to provide telecom services in China," said a statement released by the U.S. Department of Commerce.

Further raising the stakes: China's cable industry, in the process of unifying what was once a disparate collection of independent cable companies and infrastructures, is showing increasing interest in the Internet and TCP/IP based services. The newly created China Cable TV Network Group Co. could take advantage of the inevitable blurring of traditional industry roles brought on by convergence and become a fourth competitor. The industry faces significant hurdles however, including current regulations forbidding their entrance into the market and a lack of technical experience and resources that may be necessary to pull of a nationwide, cable-based TCP/IP network.

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