Telecommunications industry in China

:"This article discusses the telecommunications industry in mainland China. For Hong Kong and Macau, see Communications in Hong Kong and Communications in Macau. For Taiwan (Republic of China), see Communications in the Republic of China."

The telecommunications industry in China is monopolized by various state-run businesses: China Telecom and China Netcom in the fixed-line business, China Mobile and China Unicom in the mobile sector, as well as two much smaller companies: China Satcom and China TieTong. As a result of China’s entry to the World Trade Organization (WTO) in 2001, a new regulatory regime is now being established and foreign operators are gradually being allowed to access the market. Although Chinese customers keep complaining that they need to pay higher prices for products and services and receive lower-quality services than customers in America or Europe, foreign travellers often feel that the telcommunication services in China is cheap and convenient.

As China’s 2nd generation of mobile communications equipment market is dominated by European and North American companies and because of the unique characteristics of mobile communications, most of China’s mobile communications equipment demands are filled by imports. The quickly rising Chinese manufacturers, however, led by Huawei Technologies and ZTE are turning to South American, Southeast Asian and African countries for business opportunities and are increasingly raising their market share in China.

In 2005, China’s Ministry of Information Industry (MII), the most important government regulator in the telecommunications industry, projects that Chinese telecom carriers will invest $25 billion to recruit 45 million fixed line telephone subscribers and 58 million cellular phone users. MII expects the number of fixed line telephone users to reach 361 million and the penetration rate to reach 27.6% by the end of 2005 and the number of cellular users to reach 392 million and a penetration rate of 30%. With such an investment, Chinese telecom carriers expect to generate revenues of USD 76.5 billion, 10.4% more than that in 2004.

Introduction

The Chinese telecommunication sector’s growth rate was about 20% between 1997 and 2002. China fixed-line and mobile operators have invested an average of 25 billion US dollars on network infrastructure in the last years, more than all western European carriers combined. As a result, with 1.3 billion citizens, China owns the world’s largest fixed-line and mobile network in terms of both network capacity and number of subscribers.

Only one out of ten Chinese citizens had a phone five years ago. Today more than one out of three have a fixed telephone subscription and more than 1.25 million cellular subscribers sign up in China every week.

China’s accession to the World Trade Organization (WTO) on December 11th, 2001 resulted in the gradual opening of the telecom services market to foreign companies.

China’s two mobile operators, China Mobile and China Unicom, will continue to expand their mobile networks in 2005 in a way that not only increases network coverage but also gives flexibility to offer more data services to their customers. They will continue to have great demand for base stations, switches and network optimization solutions.

Historical overview

Before 1994, the Ministry of Posts and Telecommunications (MTP) provided telecom services through its operational arm, China Telecom. Pressured by other ministries and dissenting customers, the Chinese government officially started the telecom industry reforms in 1994 by introducing a new competitor: China Unicom. China Unicom could hardly compete with the giant China Telecom.

In 1998, due to a ministerial reorganization, the MTP was replaced by the new Ministry of Information Industry (MII). The MII took two large scale reshuffling actions targeting the inefficient state-monopoly. In 1999 the first restructuring split China Telecom’s business into thee parts (fixed-line, mobile and satellite). China Mobile and China Satcom were created to run, respectively, the mobile and satellite sectors but China Telecom continued to be a monopoly of fixed-line services. The second restructuring in 2002 split China Telecom geographically into North and South: China Telecom - North kept 30% of the network resources and formed China Netcom (CNC) and 70% of the resources were retained by China Telecom - South or simply the new China Telecom.

These resources consisted of a 2,200,000 km long nation-wide optical network, based on Asynchronous Transfer Mode (ATM), Synchronous Digital Hierarchy (SDH) and Dense Wavelength Division Multiplexing (DWDM) technologies and several submarine cables, in particular with the USA, Japan, Germany and Russia.

Parallel to this double fission, the telecommunications division of the Ministry of Railways (MOR) established a new actor in 2000: China TieTong. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004]

To sum up, in the last decade the Chinese telecom industry has changed from a state-run monopolistic structure to state-run "oligopolistic" structure.

Regulatory environment

The MII is responsible, among other duties, for elaborating regulations, allocating resources, granting licenses, supervising the competition, promoting research and development and service quality as well as as for developing tariff rates. ["China: Telecommunications." US Commercial Service. 2003.] [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] The MII has built up a nation-wide regulatory system composed of Provincial Telecommunications Administrations (PTA) with regulatory functions within their respective provinces. A number of other significant institutions also influence the industry, such as the State Development and Reform Commission (SDRC). ["China: Telecommunications." US Commercial Service. 2003.]

Following its WTO accession, China is starting to make plans, including adopting western-style telecommunications law and setting up an independent regulatory and arbitration body to deal with the telecom operators.

Foreign participation

Prior to its WTO accession, China’s policy protected the national emerging telecom industry [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] since it was and is a national priority sector. Only foreign equipment vendors were allowed to invest in China. [E. Sautedé, "Telecoms in China: Towards a Post-WTO Shock Therapy?", China Perspectives. 2002.] Authorization for the investments was conditioned on technology transfer. [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] International telecom carriers were banned from accessing the market. [E. Sautedé, "Telecoms in China: Towards a Post-WTO Shock Therapy?", China Perspectives. 2002.]

As part of the WTO commitments, the Chinese government is opening gradually the carriers market to foreign investors. There are some geographical limits to this opening but they will be progressively relaxed. In 2005 foreign investors will be allowed for form joint ventures, investing up to 50% in Internet services in the whole country, up to 49% in the mobile sector in 17 major Chinese cities and up to 25% in fixed-line basic services in Beijing, Shanghai and Canton (Guangzhou). [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] Finding a Chinese partner to form a joint venture with, preferably a major carrier is mandatory for a foreign company wishing to access the Chinese market.

Foreign investments come, in order of importance, from the United States, Canada, Sweden, Finland, Germany, France, Japan and South Korea. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004] Main companies from these countries already have one or more Joint Ventures. Notice that many of them result in "divorce".

Market overview

As of July 2006, China has 366 million fixed-line subscribers and 431 million mobile customers(MII). Chinese telecom operators focus their effort on voice. Revenues from data only account 5%. [S. Lin, "A new Changing Landscape". 2003] New technologies are being deployed to provide differential services. These technologies include ADSL, wireless LAN technology, IP (Internet Protocol) telephony and services associated with mobile communications such as Short Messaging Service(SMS), Multimedia Messaging Service (MMS), ring tone download etc. Chinese operators are often cautious in purchasing cutting-edge technologies. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.] Mobile communication, especially Global System for Mobile (GSM) is the most profitable sub sector and reports 46% of all total revenues. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.]

Halfway between mobile and fixed, Xiaolingtong is a limited mobility service based on Personal Access System (PAS) / Personal Handy Phone System (PHS) technology. It consists of a wireless local loop that provides access to the fixed-line network. With over 50 million users, PAS/PHS competes in big cities head to head with traditional mobile services since prices are typically far cheaper. [C. Watts, "China’s Telecom Market: An overview", China Business. 2003.]

Telecom operators

As of 2004, the telecom operators in China are exclusively Chinese: two fixed-line operators with nation-wide licenses - China Telecom and China Netcom - two mobile carriers - China Mobile (GSM) and China Unicom (GSM and CDMA)- as well as two minor players - China Satcom and China Tietong. The State has control and majority ownership of all of them. Most of them are financed in Hong Kong.

* China Telecom operates mainly in the wealthy Southern provinces (including Shanghai and Canton) in addition to the less prosperous West. It runs domestic and international fixed-line networks and provides fixed-line voice, data, video, multimedia and information services. It compensates the lack of a mobile license by deploying PAS/PHS very successfully. A second focus point is broadband based on Ethernet and ADSL. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.]

* China Netcom operates in the Northern provinces (including Beijing) and provides broadband, WLAN, IP telephony [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.] and PAS/PHS services.

* China Mobile not only operates basic GSM services but also value-added services such as General Packet Radio Service (GPRS) data transfer, IP telephony and multimedia. It ranks the first in the world in terms of network scale and customer base. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.]

* China Unicom is to date the only licensed full telecom service provider in China. [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] Its services include fixed-line, mobile, IP telephony, data and internet. Furthermore, China Unicom is the third largest mobile operator in the world and the only one in China operating a CDMA network. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.] It is concentrating its efforts on CDMA and little investment is expected in GSM.

* China Satcom is licensed to engage in all kind of satellite related services such as transponder lease, domestic television broadcasting, public Very Small Antenna Aperture (VSAT) communications, video conferencing, data broadcasting, IP telephony and satellite based high-speed Internet access. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.]

* China TieTong, formerly affiliated with the national rail network, is a smaller operator that merged with China Mobile in May 2008.

* China Voice Holdings Corp is also licensed to engage in all kind of video conferencing, data broadcasting, IP telephony and satellite based high-speed Internet access and is the largest corporation in conjunction with the America's free enterprise system which holds many of the state run contracts for the Chinese government. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.]

Network equipment suppliers in China

The leading international suppliers of network equipment - Alcatel-Lucent, Cisco, Nortel and Siemens - as well as the major international suppliers of portable phone sets - Ericsson, Motorola, Nokia, Samsung, and also Siemens - are well known in China.

A large number of Chinese companies compete now with foreign corporations not only in the Chinese market but also in third-world countries. Datang is the main TD-SCDMA manufacturer, and UTStarcom, the main PAS/PHS manufacturer. Huawei leads the SMS market and Great Wall stands out in the broadband sector. Other recognized Chinese equipment suppliers are Shanghai Bell and Zhongxing Telecommunications Equipment (ZTE). Furthermore, Amoi, Konka, Ningbo Bird and Kejan are the most representative Chinese mobile phone manufacturers. [J. Wang, C. Werker, "Telecommunications Equipment Market in China" Stat-USA Market Research Reports. 2004.] [C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.] [C. Watts, "China’s Telecom Market: An overview", China Business. 2003.]

Online and mobile gaming

Chinese fixed line telecom operators will work with their business partners, online gaming operators and ISPs/ICPs, to provide online games and mobile games in 2005. This can be a market of billions of U.S. dollars. Online gaming/mobile gaming developers work with the telecom operators directly or work with gaming operators and ISPs/ICPs to market their games in China.

Wireless LAN

Chinese fixed line telecom operators, China Telecom, China Netcom and China Tie Tong (formally China Railcom), may increase their efforts in building wireless LAN networks to provide their customers with fast and easy wireless access to the internet. The fixed line telecom operators will continue to promote ADSL and other broadband access technologies in China.

Public safety system

With increasing awareness of the importance of government’s ability to deal with critical situations, there is a growing demand for emergency response systems in China. Without an organization like the National Emergency Number Association (NENA) in the United States, China has not yet developed a national technical standard for its emergency response system. At present, large and economically well-off cities in China like Beijing, Tianjin, Nanning and Chengdu have started building public safety networks by introducing TETRA-based digital trunking system that integrate with their existing analogue systems. More Chinese cities followed in 2005. There has been development of database software, interoperability consoles and data management systems.

See also

* Communications in the People's Republic of China
** Digital divide in the People's Republic of China
* Electronic information industry in China
* Economy of the People's Republic of China

Footnotes

References

# "Telecommunications Markets in China" Pyramid. 2003
# "China: Telecommunications". US Commercial Service. 2003.
# T. Parks, C. Yuanzhe, "The next Stage of the Chinese Telecom Market", Parks Associates. 2003.
# S. Lin, "A new Changing Landscape". 2003.
# C. Sharkey, M. Wang, "An Overview of the Telecommunications and Broadcasting Market in China", Stat-USA Market Research Reports. 2003.
# W. Ying, "China Market Overview", UTStarcom. 2004.
# D. Liu, "Prospect of Telecom and Internet Markets in China" BII Group Holdings Ltd. 2002.
# C. Watts, "China’s Telecom Market: An overview", China Business. 2003.
# A. Chetham, "After the Boom in China’s Telecom Market". Gartner. 2003.
# J. Henry, T. Phan, "Telecommunications and Information Technology in China". Export America. 2003.
# J. Story, "China: the Race to the Market". McGraw Hill. 2004.
# W. Foster. S. Goodman, "The Diffusion of the Internet in China", CISAC, Stanford University", 2001.

External links

* [http://web.syr.edu/~ztan/China-tel.html Telecommunication and Information Industry in China] Zixiang (Alex) Tan at ztan@syr.edu.


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