State of China Unicom etc
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In 1993,the MPT took its first steps toward deregulation. A year later a second operator was formed, China Unicom, which was the creation of the Ministry of Electronics Industry, Ministry of Power, and Ministry of Railways. The electronics ministry is a fierce bureaucratic rival of the MPT.
Unicom was ostensibly intended to introduce at least limited competition and address coverage in underserved areas of the national telecom grid (although it quickly moved into the most lucrative mobile markets to go head-to-head with China Telecom's spin-off, China Mobile). In the past several years, telephone service has improved dramatically. In remote towns and villages, where ten years ago one had to travel several hours to find a phone line, there is now local service, often wireless.
In 1998, a bureaucratic reorganization created the supersize Ministry of Information Industry. The senior officials of the former MPT - China Telecom's parent and, some say, protector - now dominate the regulatory bureaucracy, including rival Unicom.
So the old monopoly king still rules. "China Telecom owns everything, and it has no incentive to help," says Michael Robinson, a consultant based in Beijing.
"They will make it as difficult as possible, fighting to the end." Chinese bureaucracy is a tangle of personal ties, fiercely guarded fiefdoms, and organizational rivalries that tilt the advantage to those who have better guanxi, or personal connections. Still, rigged competition is better than, none, and reform-minded Prime Minister Zhu Rongji has pushed to open up bloated state sectors to badly needed competition.
China started laying masses of fiber optic cable in the mid-'90s. According to Mr. Robinson, the country is installing the equipment equivalent of a regional Baby Bell each year. A 1999 report by consultancy KMI, based in Rhode Island, says China's fiber-optic network, measured in fiber kilometers, made up 8.3 per-cent of the world's total in 1996. That climbed to 12 percent in 1998 and is projected to reach nearly 14 percent by 2004.
Much of the optical backbone uses synchronous digital hierarchy transmission technology, but China is also aggressively rolling out dense wavelength division multiplexing as well. It is one of the first countries after the United States to do so, with planned upgrades of its optical transmission systems from 20 Gbps to 40 Gbps. "What's happening in China, technologically, is definitely not third world standards," Mr. Robinson says.
"The management may be backward, but the technology is cutting edge."
China Telecom's network connects most Chinese cities and reaches into the thinly populated western provinces (see "The Chinese Connection," below). But much of the fiber is poor quality and can't be upgraded. Instead, China Telecom has embarked on a massive buildout, increasing bandwidth capacity to 10 Gbps while upgrading its backbone network. Sometimes fiber is installed willy-nilly, with no plan beyond getting it in. One consultant reported seeing strands of new fiber, barely held in place with cheap glue, hanging off telegraph poles.
Thanks to its control of the right-of-way along the 45,300 miles of railroad lines, the Ministry of Railways has a network nearly as extensive as China Telecom's. Its fiber, too, is in uncertain condition, and the ministry is criticized for poor network management. The railways ministry leases a lot of spare capacity to operators, including Netcom and Unicom, making it the carrier's carrier.
The People's Liberation Army also built a network, for national security. The Ministries of Power, Water Resources, and Education each have their own fiber. And new players, including the well-connected government-backed investment arm China International Trust Investment Corporation (CITIC), are rumored to be entering the fray.
Duplication continues at the local access level. Numerous players are building overlapping metropolitan area networks in the major coastal cities. Many are using the same strategy as Edward Tian and Netcom: forgoing the residential market and laying fiber to the major office complexes in financial districts.
When it comes to the critical last mile, however, China Telecom has the choke hold. "The other operators basically have to get down on their knees and beg for bandwidth," says Ted Deen of BDA, a Beijing consulting firm.
Complicating the picture, administration of China's telecom market is extremely fragmented-even more than in Europe, according to one observer. A national backbone exists, but it is splintered, with different authorities controlling access at different points. It would be like New York, New Jersey, Connecticut, and every other state and region each having its own network. For instance, to make a connection between ISPs ChinaNet and UniNet, it was often easier to route the data through the United States, because the interconnect in Beijing was problematic and frequently overloaded.
With so many players and so little coordination, many observers predict that China will end up with a bandwidth glut, at least in the short term. "Once they build all this, they won't be able to use half of it," says Kenneth Dewoskin, a partner with PricewaterhouseCoopers in Beijing.
An even more critical issue for Internet development is control of the international gateways. In theory, nine network service providers-sort of supernational ISPs-are authorized to operate international gateway licenses. In addition to Telecom's ChinaNet, Unicorn's UniNet,
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