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.

The telecommunications industry in China is dominated by three state-run businesses: China Telecom, China Unicom and China Mobile. The three companies were formed by a recent revolution and restructuring launched in May 2008, directed by Ministry of Information Industry (MII), Nationals Development and Reform Commissions (NDRC) and Minister of Finance. Since then, all the three companies gained 3G licenses and engaged fixed-line and mobile business in China.

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.

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.

As of 2009, Huawei Technologies is expected to surpass Nokia-Siemens Networks and Alcatel-Lucent to become the 2nd largest manufacturer of telecommunications equipment.

As of March 2012, there were a total of 284.3 million fixed-line telephone subscribers and 1.01 billion mobile phone subscribers in China.

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 US$ 25 Billion on network infrastructure in the last years, which will be 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 11, 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. Parallel to this double fission, the telecommunications division of the Ministry of Railways (MOR) established a new actor in 2000: China TieTong.

These resources consisted of a 2,200,000 km long nationwide 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.

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

In May 2008, MII, NDRC and Minister of Finance announced the third restructuring proposal and also launched three 3G licenses. With the rapid development and serious competition, Chinese telecom operators face challenges on shrinking landline users, too rapid growth on mobile business, low profit services and great gaps among the carriers. The third revolution was to combine six main telecom operators into three, aiming of developing 3G business and full telecom services, and avoiding monopolistic and over competition.

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 for developing tariff rates. The MII has built up a nationwide 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).

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.

Since 2014, the Cyberspace Administration of China is responsible for setting policy and the regulatory framework for user content generated in online social activities on Internet portals.

Foreign participation

Prior to its WTO accession, China’s policy protected the national emerging telecom industry since it was and is a national priority sector. Only foreign equipment vendors were allowed to invest in China. Authorization for the investments was conditioned on technology transfer. International telecom carriers were banned from accessing the market.

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 were authorised to 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). 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. Main companies from these countries already have one or more Joint Ventures, not all of which are ultimately successful.

Market overview

As of March 2012, China has 284.3 million fixed-line subscribers and 1.01 billion mobile customers. Chinese telecom operators focus their effort on voice. Revenues from data only account 5%. 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. Premium SMS connectivity is allowing entrepreneurs and established businesses to profit from revenue taken directly from users' monthly phone bills or pre-paid credit. One of the first companies to offer such Chinese Premium SMS connectivity to the world market and to advise on the regulations and requirements involved are mBILL. Chinese operators are often cautious in purchasing cutting-edge technologies. Mobile communication, especially Global System for Mobile (GSM) is the most profitable sub sector and reports 46% of all total revenues.

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.

Telecom operators

Main article: Mobile phone industry in China

As of 2009, the telecom operators in China are exclusively Chinese: two fixed-line operators with nationwide licenses - China Telecom and China Unicom - three mobile carriers - China Telecom (CDMA and CDMA2000), China Mobile (GSM and TD-SCDMA) and China Unicom (GSM and WCDMA). The State has control and majority ownership of all of them. Most of them are financed in Hong Kong.

• China Telecom is one of the largest telecommunication SOE in China, including 31 semi-autonomous provincial enterprises in mainland China. It runs land-line and mobile phone networks, operates PAS system and provides telecom network-based voice, data, multimedia and information services. In 2008, the company acquired CDMA network from China Unicom. A second focus point is broadband based on Ethernet and ADSL. In Jan 2009, China Telcom was one of the three companies having 3G license, CDMA2000.

• China Mobile not only operates basic GSM services but also value-added services such as General Packet Radio Service (GPRS) data transfer, a TD-SCDMA 3G network, IP telephony and multimedia. It ranks the first in the world in terms of network scale and customer base.

• China Unicom merged with China Netcom in Oct 2008 and obtained WCDMA license in Jan 2009. The company offers mobile phone services, operates domestic and international landline network, and provides broadband multimedia services and IP telephony and value-added services.

• China Netcom was acquired by China Unicom in Oct 2008.

• China Satcom is formerly 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. In March 2009, the company officially announced its basic telephone services (excluding satellite transponder lease and sales) were merged with China Telecom. The other part, satellite related services will be merged with China DBSAT, (Chinese: 中国直播卫星有限公司).

• 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 video conferencing, data broadcasting, IP telephony and satellite based high-speed Internet access and is the largest corporation in conjunction with foreign owned corporations which hold many of the state run contracts for the Chinese government.

Network equipment suppliers in China

The leading international suppliers of network equipment - Alcatel-Lucent, Cisco, Ericsson, Huawei, 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 other 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.

Online and mobile gaming

See also: Online gaming in China and Video games in China

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

• Mobile phone industry in China
• Communications in China
• Digital divide in China
• Electronic information industry in China
• Economy of China

References

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

External links

• China Information Industry Net