China’s government is taking additional steps to open the telecoms industry to private investment in an attempt to improve the country’s internet service, which it sees as a key driver of economic growth.
According to a notice from the Central Committee and the State Council, the government will give “free rein to telecoms companies in the development of the internet”, Reuters reported. The State Council is China’s Cabinet.
The government called for more cuts to telecoms fees and said it “was committed to bolstering competition by easing rules and curbing subsidies”, Reuters said. The notice also pledged to give venture capital firms and small internet businesses more freedom, without providing detail.
China’s government initiated a number of steps to fuel competition in the telecoms sector over the past two years, with the aim of reducing fees and increasing the speed of internet service, particularly in rural areas. For example, its so-called Internet Plus plan announced in 2015 aims to integrate the mobile internet, cloud computing, big data and the Internet of Things with traditional industries to encourage the development of e-commerce and modern manufacturing in strategic sectors.
The country’s three state-owned operators China Mobile, China Unicom and China Telecom have a virtual monopoly on telecoms service. Although China’s Ministry of Industry and Information (MIIT) issued 37 MVNO licences in 2014, the virtual operators have signed up only about 20 million subscribers, a small fraction of the country’s 1.3 billion mobile users.
Nearly two years ago, shortly after Premier Li Keqiang criticised the country’s mobile internet for being expensive and slow, the telecoms regulator pushed industry players to lower prices and improve speeds. The country’s three operators quickly committed to reducing data prices by 20 per cent to 35 per cent, as well as improving network speeds.
In April 2016 China announced plans to allocate additional funds to rural areas to improve the internet infrastructure and extend broadband connections to promote e-commerce and boost trade. The programme aims to integrate the internet with the logistics sector to reduce costs, increase profits, stimulate consumption and boost employment.
In October China Unicom announced it could be selected to be in the first pilot for mixed-ownership reform, a government programme which Fitch Ratings explained could see the introduction of private capital, a reduction in state ownership – but not control – and some increase in management autonomy.
Although the reform plan is still being studied, Fitch expects it to introduce domestic strategic investors to China Unicom or part of its businesses.
A fourth player
MIIT in July 2016 granted a telecoms licence to China Broadcasting Network (CBN), creating a fourth player. However, the move is unlikely to speed up broadcasting-telecoms network convergence in the country.
CBN will not enter the mobile market anytime soon as its telecoms licence only covers telecoms infrastructure and domestic internet data transmission services, Fitch said. CBN holds 700MHz spectrum, which can be redeployed for 4G use, but even the rollout of a basic 4G network would take massive capital as well as time, which would leave it far behind its competitors.
Granting CBN a telecoms licence advances the State Council’s ‘Three-Network Convergence Promotion Plan’ issued in September 2015, which aims to speed up the full convergence of telecoms, broadcasting and internet networks.
In another sign the government is opening up the incumbents to market pressures and opportunities, China recently revised its spectrum regulations, which offers hope the country’s 5G frequencies can be made available via a market-based approach rather than relying on administrative approval as in the past. According to the new Radio Regulations, which came into effect on 1 December, the country’s radio frequency resources can be allocated through administrative approvals and a market-based approach, which includes bidding and auctions.