Abstract

Other than the pressure of market liberalization, the Chinese telecom market also faces 3G license problems. Both issues will have significant impact on the future development of the Chinese telecom sector, and are also two focus areas of the Chinese government in its goal to balance telecom market development. As a result, telecom market liberalization, 3G license issuance, and telecom sector reform are closely intertwined, and should be considered together.

Cooperation with Foreign Companies Aimed at Improving Chinese Telecoms' Weak Areas

Even though China's government has pledged to open its telecom market for the WTO, as the Chinese government itself is the key shareholder of many state-owned telecoms in China, and as the telecom sector is considered one of the country's key assets, it is unlikely that core management of telecoms will undergo significant changes. However, due to the fact that the Chinese telecom market is still strongly driven by voice demand and that most of the domestic telecoms lack a comprehensive value chain and actual business experience for data services, integration capabilities for data services will need to be strengthened as the start of the 3G era is nearing. For example, China Unicom has cooperated with SKT in order to develop its CDMA business. It seems that offsetting weaknesses of Chinese telecoms is China's key selection criterion for foreign investments. It is also possible that the government will prefer to invite several different foreign investors to invest in one state-owned telecom. Foreign telecoms' role in China's telecom sector might be to assist Chinese telecoms in areas in which they are not very strong. 

3G Licenses to Balance Development among Telecoms

Due to the Chinese government's long-standing policy to separate telecoms' operations geographically, Chinese telecoms' development has been unbalanced. According to MII (Ministry of Information Industry) statistics, up until June 2006, the number of fixed-line network subscribers reached 365 million, with a penetration rate of 28%, while mobile phone subscribers hit 426 million, with a penetration rate of 32.7%. If fixed-line users are calculated on a household basis, the actual penetration rate of fixed-line telephones has surpassed 80%.  For China Telecom and China Netcom, which focus mainly on fixed-line business, their future development is therefore somehow limited, and thus their development potential is not as strong as China Mobile and China Unicom. With 3G licenses to be issued soon, what kind of licenses China Telecom and China Netcom, which do not have nation-wide mobile communications networks, will obtain, and how they may cooperate with China Mobile or China Unicom to utilize their mobile networks, are two key factors for balancing development in the Chinese telecom market.

Appendix

Glossary of Terms

List of Companies