A telecom leap forward

10 Mar 2008

After years of stasis, China's telecom industry must be dizzy from the excitement.

Over the past four years difficult decisions, such as 3G licensing, introduction of TD-SCDMA and carrier reform, have been put on the backburner.

But now TD-SCDMA is being trialed and 3G licenses are expected later this year as part of the biggest carrier shakeup in a decade. Details of the reforms have been widely reported and are expected to be formally announced in March.

Not only that, but the central government bureaucracy is also being substantially reshaped. The Ministry of Information Industry (MII) looks likely to be one of the winners, with an expanded role in industry policy.

But reform of the lopsided carrier sector is more pressing. China Mobile dominates, with three-quarters of the profit and the growth.

After the mobile giant cut its prices in the middle of last year, the two fixed-line operators lost more than 2.3 million customers in just six months. The mobile carriers added an average 7.12 million new customers each month for the entire year.

Winning the price war

Industry analysts expect that cuts to domestic roaming charges, forced upon the mobile operators from early March, will encourage even more consumers to dump their home phone service.

The planned restructure will create three carriers, each with both fixed and mobile businesses.
China Unicom will sell its CDMA network to China Telecom and then merge with China Netcom, which has the fixed-line franchise for northern China. China Telecom is believed to be well-advanced in planning the integration of the CDMA business into its existing operation. Railcom, the smallest network carrier, will become a department within China Mobile.

The only unknown is the timing. One final obstacle is the sensitive one of senior appointments. The mainland media is speculating almost daily about the fate of the CEOs and chairmen (all male) of the four listed carriers. All are former officials of the MII or its predecessor, the MPT. Those who don't keep their posts may find a role in the newly-expanded MII.

The streamlining of national ministries now underway is expected create a super-MII with an expanded brief to pursue industry policy for carriers and in particular electronics manufacturers.
The new MII is unlikely to include its rival media regulator, SARFT. Its new brief will be less to focus on telecom regulation than to help drive China's 'indigenous innovation' industrial development program.

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