IP Price Cuts Could Signal Chinese Phone War
By Matt Pottinger, Reuters
Jan 2, 2001 (4:48 AM)
URL: techweb.com
BEIJING -- China Netcom Corp. has slashed its Internet protocol (IP) phone rates by up to 50 percent in what may turn out to be the opening shot of a price battle among Chinese telecommunications operators. The rate cuts are made possible by looser telecoms price regulations that went into effect on Monday and at least one other firm is considering similar discounts.
China Netcom, one of the country's six licensed telecoms operators, said in a statement carried by state newspapers on Tuesday it had cut fees on calls to the United States and Canada to $0.29 per minute from $0.58.
Other international call rates had also fallen by around a third, the statement said.
IP telephony is a technology that carries voice calls over the Internet rather than traditional circuit-switched phone lines. The service is much cheaper than regular phone service, and China has issued IP licenses to at least five carriers.
When it was first permitted in China in April 1999, the government set IP service rates at around one-third of normal calls, making it a hit with consumers galled by exorbitant fees charged by state goliath China Telecom.
It has also become a major source of revenue for young rivals to China Telecom, including China Netcom, Jitong Network Communications Co. and China Unicom Group.
But Beijing announced a major revamp of telecoms fees last week that went into effect on Jan. 1. The new rules include deep cuts in rates for international and many domestic long-distance calls.
Those adjustments would effectively rob IP telephony of much of the discount that has made the service so attractive.
So the government added a clause allowing IP phone providers to “set relevant fee standards according to their own cost structures and operating characteristics” -- an apparent green light to set fees at will.
While lower fees should attract a massive pool of low-income subscribers as customers, the cuts are likely to reduce revenues in the near term, complicating plans for stock listings.
Netcom, which has said it might seek to sell shares overseas this year, said in November it expected more than half of its projected $65 million in revenues for the year ending March 2001 to come from IP phone service.
Jitong Network Communications, which cancelled a planned initial public offering on the Nasdaq and Hong Kong Growth Enterprise Market in November, also has depended on IP phone service for the lion's share of its income.
Several fund managers cited fears about unstable IP phone pricing as a reason for shunning Jitong's planned issue.
Asked whether Jitong would make price cuts along the lines of Netcom's, Jitong Vice President Ning Xianfu said: “We will probably do something similar, but right now I have nothing concrete to discuss.”
A China Unicom Group spokesman said he was unaware of any changes in IP phone rates, and officials at China Telecom -- which also provides the service -- were unavailable for comment. |
