Resale of Mobile Communications Services Back on the Menu in China: But Only a Few Seats at the Table

Notwithstanding the high hopes surrounding China's entry into the World Trade Organization (WTO) over 10 years ago in 2001 with the commitment from China to open up both basic telecommunication services (BTS) and value added telecommunication services (VATS) , the actual opening up of China's telecommunications industry has failed to match the expectations of foreign investors going into WTO. The primary government authority regulating the telecommunications and Internet industries in the People's Republic of China is the Ministry of Industry and Information Technology (MIIT), which so far has adopted a quite protectionist stance in opening up China's telecommunications and Internet markets to overseas operators. Over ten years on since WTO, whether you look at BTS such as fixed line and mobile network communication services or VATS like broadband access services they are still, across the board, almost exclusively provided by one or more of the three main telecommunications carriers in China, namely, China Telecom, China Mobile and China Unicom (collectively, the Chinese Telecommunications Carriers) often under services marketed under sub-brands that obscure the link to the parent. Although each one has a listed arm on both the Hong Kong Stock Exchange and the New York Stock Exchange, they are still ultimately controlled by the Chinese state and operated for the most part as state-owned enterprises.

Each has enjoyed phenomenal growth which has propelled them into a select group of the world's largest telecommunications carriers. China Mobile for example, is the world's largest mobile phone operator based on the number of subscribers. Driven by China's economic growth, this comes as no surprise given the exponential growth in mobile and Internet users over the past decade. The picture that emerges from this is that MIIT wants the Chinese Telecommunications Carriers to reap the benefits of China's growth. However, our experience suggests that protectionism breeds complacency and curtails innovation at the expense of the end consumer, who ends up burdened with high subscriber fees and sub-optimal choice. Given the virtually unassailable position now held by the Chinese Telecommunications Carriers and with an eye to the future development of the telecommunications industry, MIIT has recently shown signs of gradually loosening its grip on BTS, although not where foreign investment is concerned. In this note, we examine important recent changes to the regulatory environment in the mobile communications resale services sector and what they mean for domestic and foreign investors.

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