Operators set to scramble for slice of lucrative telecoms pie
Dec 5 2000 4:49PM
CHRISTINE CHAN, ERIC NG and PEGGY SITO
The biggest challenge facing China's telecommunications operators is Beijing's move to open up the industry.
The latest example of its willingness to take on more participants is the go-ahead given to the powerful Ministry of Railways to join the fray.
The industry's deregulation could have far-reaching ramifications to existing operators, more so than the proposed controversial one-way billing arrangement which sent the share prices of China's two locally listed mobile phone companies plunging in the past 10 days.
This is just the beginning.
The liberalisation is likely to intensify as China enters the World Trade Organization, hopefully by the first quarter of next year.
More companies will get the chance to jump on the bandwagon and telecoms charges will have to be cut.
Research head of China Everbright Securities, Federick Tsang, said China was paving the way for wider deregulation ahead of its impending entry into the WTO.
"Before its opening-up to foreign investors, Beijing will try to allow more domestic players in the industry," Mr Tsang said.
Beijing has already indicated its intention to issue the country's third mobile license, which would challenge the duopoly of China Mobile and China Unicom.
Analysts expect the license to be issued as soon as next year, most likely to China Telecom -- the country's biggest fixed-line operator.
On fixed-line operations, the strongest challenge will come from the Ministry of Railways, given its infrastructure network is second only to China Telecom.
The ministry is expected to soon spin off China Railway Telecom (CRT), which will provide fixed-line and data transmission services.
About 40,000 kilometres of CRT's 12,000-km rail network is covered by optic-fibre, making it a formidable rival in the long-distance calls and data communications markets.
With plans to merge with China Unicom in three years, CRT appears a serious threat to China Telecom in the long-run.
Analysts believe CRT will have a niche in the inter-provincial long-distance traffic.
Mr Tsang expects the fixed-line market to be shared by four companies: China Telecom, a tie-up between Unicom and CRT, Jitong Communications and a potential co-operation between China Netcom and Citic Pacific.
Jitong provides telecoms services through the Internet.
"That will be a perfect arrangement as it will create competition and at the same time, foreign players will have a hard time taking a dominant role," said Mr Tsang.
He said the Ministry of Railways had a strong fibre-optic network and its potential tie-up with Unicom -- a fixed-line operation license -- would be a perfect match.
A potential alliance between China Netcom, the country's smaller but most ambitious operator, and Citic Pacific -- a Hong Kong-listed red chip with optical-fibre networks in the mainland -- would have similar synergies, Mr Tsang added.
However, analysts said short-term threats from the new operators would be limited, as Beijing was likely to keep the number of contenders within each market segment to three or under.
"The government's intention is to let the incumbent operators grow until they have substantial market shares and profitability, before they issue new licenses," one European brokerage analyst said.
Even if new licenses are issued, it would take new operators a few years to build networks and catch up with the incumbents.
China Unicom president Wang Jianzhou said earlier he expected it would take a new license holder two to three years to build up a substantial wireless network.
Apart from the growing competition from new entrants, calls are mounting for lower telecoms tariffs in China, as with the world over.
This has put immense pressure on telecoms operators and regulatory authorities.
And in China, pricing is a sensitive issue that involves consensus from various government bodies.
The one-way billing proposal for mobile-phone services is one example.
During the past year, Beijing has cut international telecoms charges to rationalize the structure of services, while raising domestic tariffs to mitigate the fall in revenue.
Until the adjustment, the local calls market has not been attractive, as tariffs have been kept at artificially low levels.
The European analyst expects China to follow developed markets' moves to raise local fixed-line fees and drop long-distance fees, to gradually readjust the situation in which long-distance callers subsidize fixed-line subscribers.
In the long run, analysts believe mobile-phone prices will continue to fall in China in order to enhance the take-up rate of users.
With China's telecoms industry expected to grow at 20% every year during the next five years, there is no doubting Beijing's commitment to further its reforms and open up its industry.
Copyright © 2000 South China Morning Post Publishers Ltd. All Rights Reserved.
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