Article on China Telecom [200M wireless users by 2010]
The Internet Poses a Threat to This Huge Company
planetclick.com
February 24, 1999 6:15 AM EST
By Lucy Weldon
Special to worldlyinvestor.com
The government in China is trying to maintain
a tight rein on the Internet sector. That has
major implications for state-run monopoly
China Telecom (quote, chart, profile) and for
investors who are thinking about an easy way
to play China's burgeoning Internet market.
"The government is grappling with a number of
issues to do with the Internet such as
international telephone services over the
Internet and the potential threat it represents
to China Telecom's (quote, chart, profile)
monopoly," says David Gibbons, Hong
Kong-based telecom analyst with HSBC.
The number of Internet customers in China is
tiny. Information Gatekeepers Inc. has
estimated that at the end of 1998, there would
be two million users out of a total population of
1.2 billion. It's a tiny fraction but what matters
is the rate of growth. Users are estimated to
rise to around seven million by 2000.
That's great, in theory, for China Telecom.
China Telecom is the dominant provider of
Internet services in China, as well as the
leading state telephone carrier. It directly
controls 80% of the Internet Service Providers
(ISP) traffic and licenses out the remaining
20% to private ISPs.
But, the tug of war between the state and
private sector providers of Internet services has
already begun. Certainly, among ISPs, prices
are already coming down. And there's
competition on all fronts relating to the Internet
with the development of Chinese language
portals, more ISPs and rising levels of
computer sales.
Plus, Internet telephony poses a significant
threat to China Telecom and its monopoly.
While the government is restructuring and
opening up the tightly controlled
telecommunications sector, it also wants to
have China Telecom remain as its dominant
state carrier.
It is a careful balance between opening up
competition and keeping a tight hold of the
reins. So far, foreign providers do not appear
particularly welcomed and this will no doubt
continue to be an obstacle to China's entry
into the World Trade Organization (WTO).
Internet telephony could, on the other hand, be
an opportunity. More specifically, it could be a
low cost and innovative way to open up the
competitive arena in China. And at the same
time, China could be at the vanguard of a
potentially more efficient technology. So far,
that looks like one too many leaps forward.
At the moment, Internet telephony looks a
considerable threat to China Telecom. It's
been reported that an Internet telephone
operator in Fujian can charge less than
one-tenth what China Telecom does per call.
But as Alan Pyne, partner at London's
telecommunications consultancy Schema,
cautions, "Internet telephony's appeal is based
on the cost advantage of sending a call over
the Internet. This advantage is thought to be
short lived for two reasons.
"Firstly, Internet telephony will have to
introduce a billing method, which will reduce
the cost advantage, and secondly,
international tariffs are plummeting in
deregulated markets. In Europe and the USA,
international tariffs have reduced by as much
as 60% per annum. This trend reduces the
benefit of Internet telephony," he says.
The prediction is that the mobile
telecommunications sector is ripe for greater
competition. It's been reported that there are
20 million mobile subscribers and that the
government wants to increase that number to
200 million by 2010.
The MII has submitted a plan to the State
Council of China, which includes the proposal
to open up China Telecom's fixed line network
facilities on a resale basis.
At this stage Internet telephony is not included
in this anticipated wave of liberalization
despite reports of entrepreneurial activity
jumping the license gun. The Ministry has
recently announced that Internet telephony
services licenses will be provided later this
year and has strongly stated that only license
holders can offer Internet telephony.
No announcements have been made which
providers will get a license. But analysts
suggest that only China Unicom, the second
state carrier, would be granted a license
alongside China Telecom.
Lucy Weldon is a journalist based in Kuala
Lumpur, Malaysia. She is the author of Private
Banking - a Global Perspective.
© 1999 Worldly Information Network, Inc. |
