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Race to cash in on China's
telecoms
By Tony Sitathan
SINGAPORE - The liberalization of China's
telecommunications market - one of the world's largest
and most enigmatic - will continue to be a mixed bag for
both foreign investors and the Chinese government, which
is hanging on to its role as both player and regulator.
But according to a report by Fusion Consulting, a
research company headquartered in Hong Kong, China's
deregulation efforts will be accelerated as the 2008
Beijing Summer Olympic Games approach.
The
report says raw subscriber growth is not in question,
but rather the quality of this growth pattern. The
report also addressed such questions as how can
profitability be maintained for operators and vendors in
serving the next 100 million subscribers, and whether
market liberalization perpetuated by the breakup of
monopoly carriers, a spate of telecom initial public
offerings (IPOs), as well as China's World Trade
Organization (WTO) entry present opportunities for
foreign players and investors.
For most of the
1990s, the rapid pace of expansion mesmerized industry
participants and observers alike. With a unique blend of
close monitoring and modernizing initiatives at the
boundaries of communism, Chinese authorities nurtured a
lucrative telecom monopoly, and the industry grew to an
estimated US$50 billion by 2001, and for this year it is
estimated to surpass $78 billion. There are now more
than 240 million fixed-line subscribers and close to 210
million mobile customers.
Xavier Lim, an
investment analyst for Double Forte Consulting based in
Shanghai that covers the telecommunications industry,
says this report put many things in perspective in light
of the rapid pace of growth in the China telecom market.
"It's interesting to see how well organized the
national carriers react to foreign competition and also
to see some of the latest telecom developments and
restructuring in the provision of fixed-line and mobile
services and the convergence of the telecom media," he
said. "And what is more interesting is how the telecom
market reacts to the coming of the Olympics Games in
2008 and what are some of the spillover effects."
According to the Fusion report, the telecom
industry will triple in size to $173 billion by 2008. In
the lead-up to the Games, the government will invest in
networks to handle telecommunications traffic for the
huge influx of organizers, participants and spectators,
as well as thousands of broadcasters who will beam
Olympic coverage to a worldwide audience of 4 billion.
By then, China will lead the world in terms of mobile
and fixed-line subscribers.
China's accession to
the WTO means that foreign players will be allowed to
own up to 49 percent holdings in domestic and
international fixed-wire, Internet and satellite service
companies by 2008. Mobile services will open up faster -
up to 49 percent allowed by 2005 - and paging and
value-added services even more rapidly than that.
The report also maintains that the Chinese
telecom market remains enigmatic on a number of issues -
its impartiality of arbitration, fair competition and
respect for the rules for interconnection, to name a
few. While the government sticks to its dual role as
regulator and player, its effectiveness as an
independent regulatory agency may be called into
question.
The ultimate test, the report reckons,
will come after 2005, when foreign-invested operators
turn to the state for recourse against domestic
incumbents. "The case is already building up for foreign
carriers like British Telecom and Telstra that are
considering greater exposure in the China market,"
cautioned Leon Tay, a telecom consultant and legal
practitioner for a multinational telecom based in Hong
Kong. "Their decision to expand rapidly has, however,
been put on hold until the laws in telecommunications
and regulatory issues have been settled. Until then many
other foreign carriers are waiting in the sidelines."
So far in China's telecommunications sector,
only 14 foreign operators have applied for permission to
set up business over the past two years and only a
handful are involved in trans-provincial telecom
value-added services or basic telecom services. A joint
venture between AT&T and Shanghai Telecom is
providing value-added services, but this company was
already in operation before China's entry into the WTO.
The opening of the services sector was the most
sensitive and complicated issue in China's negotiations
for WTO entry. In its second year after accession, China
is taking steps to fulfill its commitments and full
liberalization of the sector is in sight as major
services quicken the pace of foreign participation. "But
the overall pace of liberalization is still slow, as the
Chinese authorities prefer to drag their feet to
implement these regulatory reforms in the highly coveted
telecom sector," said Tay. "Call it a closed-door
mentality in a country that for centuries preferred to
deal with changes under its own pace of reforms instead
of being dictated by others."
The entry of
foreign capital has not brought too great an impact, but
it has helped develop and improve the sector to some
extent. Nonetheless, foreign participation has brought
new challenges and tasks to the industry, while Chinese
telecom companies are starting to look outward and
venture overseas. China Telecom and China Netcom have
obtained operating licenses in the United States.
China is considered the seventh-largest country
in the world in terms of foreign trade and the
second-largest in terms of foreign direct investment. It
has ties to most of the major banking and funding
organizations in the world. So despite the difficulties,
the enormous growth potential of China's telecom sector
is impossible to ignore.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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