Volatility clouds IT future
Wednesday, January 2, 2002
RAYMOND LI
Two events came together on the last day of 2001 to wrap up the most chaotic year in the history of China's information technology, a year in which the main telecom network carriers took centre stage and most of the dotcoms fizzled out on the sidelines.
The two events were China Unicom launching its Generation-2.5 mobile telecommunications network and Code Division Multiple Access (CDMA) network and China Mobile closing its 14-year-old analog mobile network, the first generation of the mainland's mobile network.
It was a year in which overseas players started making forays into the highly regulated industry, but one in which the mainland passed a milestone at the end of July by overtaking the US as global mobile phone king, with 120.6 million handsets in use. That claim to fame aroused some scepticism at the time, but no one would dare question it as the year draws to an end. Recent statistics from the Ministry of Information Industry showed that China's two mobile carriers, China Mobile and China Unicom, had 140 million mobile phone users in all by the end of November.
But it was China Unicom, the smaller of the two, which stole the show. It increased its subscriptions by more than 25 per cent, year-on-year, to more than 40 million by the end of November. It also increased revenues by more than 51 per cent during the first 11 months of the year.
China Unicom put 24 billion yuan into the first phase of its Generation-2.5 mobile network and CDMA network, with a capacity of 15.15 million users. That is expected to make it compete better with its bigger rival, China Mobile. In a counter move, China Mobile will launch its General Packet Radio Service (GPRS), a different version of the Gen-2.5 mobile network early next year.
Biggest loser
The year's biggest loser was China Telecom, once the mighty state telecom monopoly and still the mainland's biggest fixed-line operator. China Telecom only managed a sales increase of 6.3 per cent, or 7.5 percentage points below the overall growth of the mainland's telecom sector. To add insult to injury, the Ministry has decided to split the telecom giant into two separate entities and to regroup the telecom industry into five big players with seven backbone carriers. This is to improve their ability to compete with foreign companies now that China is a member of the World Trade Organization and has to open up more to foreign competitors.
According to a Ministry plan, the northern part of China Telecom and China Jitong Communications will merge to form China Netcom, while the southern part of China Telecom will become the new China Telecom.
The split and the uncertainty about the future have slowed China Telcom down. It has only managed half of its planned 120 billion yuan (about US$14.72 billion) investment in infrastructure for the year. Because of the slowdown, China Telecom is unlikely to reach its initial goal of 2.4 million broadband subscribers by the end of the year.
The company is still a dominant player in the broadband field, but faces some stiff competition from China Netcom, Great Wall Broadband and some regional cable TV companies. The company's original project was to remove the "final mile" of bottlenecks and to give high-speed Internet access to households all over the mainland.
Most of the 15.88 million Internet subscribers in China have shown little interest in the service. In fact, people have been annoyed and puzzled by the fuss the broadband operators have created in competing for new markets. The gold rush fever of telecom firms and cable TV operators have led to some friction between the Ministry of Information Industry and the General Administration of Radio, TV and Film over licensing rights.
If it had not been for curbs imposed by the MII, other players would most likely have joined the struggle for broadband infrastructure.
The year also saw the MII's first provision for joint-venture telecom firms, whereby a foreign partner was allowed to own up to 49 per cent of the venture. The move was intended to open China's highly regulated telecom sector along the lines of the World Trade Organisation agreement.
Also this year, the chief executives of the top five mainland dotcoms organised their second Internet Summit, in November. The first had been in September 2000. The two meetings demonstrated just how much the Internet landscape on the mainland and the feelings about an Internet economy have changed. Previously, maximum attention was given to the five mainland Internet pioneers, including Wang Zhidong of Sina.com, Charles Zhang of Sohu.com, and William Ding of Netease.
Stemming the flow
At this year's summit, only the location was the same - the scenic eastern city of Hangzhou. Everything else was different. This time round, these former darlings of the Chinese Internet business were not talking airily about Nasdaq and venture capital. Talk had turned instead to plans to slow down the hemorrhaging and to find places where they could pick up a buck. And the Chinese media seemed to be shunning the dotcom legends as if they were pariahs.
The heroes themselves did not seem the same either. Wang Zhidong, the 33-year old ex-CEO of Sina.com, who was so closely associated with Sina.com that people said there would never have been a Sina.com without him, was gone. In June, he was forced out by the company's board of directors, but the dotcom stayed alive. Also suffering a fall from grace was William Dong, chairman and CEO of the Nasdaq-listed Internet portal Netease. The 30-year-old CEO resigned from several posts at Netease because of a highly publicised incident of falsified accounting by top management. Netease is still involved in a fight over a possible de-listing.
Then there is the disgruntled Wang Juntao, the creator of the mainland's biggest online retailer, 8848.net. In September, Mr Wang departed from My8848.com, which was a breakaway unit of 8848.net. Then, just two months after his resignation, My 8848.com collapsed. That dealt a tough blow to consumer confidence, especially when it was discovered that the dotcom owed millions of yuan to creditors and customers.
And the list of dotcom bloodletting went on and the corpses marked the end of an era of the new economy in China. However, the sector was not without at least a few bright spots. Two mainland online retailers, Dangdang.com and Joyo.com, had broken even by August and September, respectively, although whether they could sustain the trend was still open to question.
While most of mainland's dotcoms still appear to be no closer to stopping the money losses, they are going where they think the money might be. According to a mid-year survey by the China Internet Network Information Centre, China had 26.5 million Internet users by the end of June and it could top the 30 million mark by the end of the year. The next statistics come out in January.
At the receiving end, the year for the Chinese customers began with an end to their free ride when most mainland e-mail service providers started charging for their service or began cutting back on their free e-mail services. The pinch landed Sina.com in court after it cut its free e-mail account from a sizable 50 MB to 5 MB.
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Published in the South China Morning Post. Copyright © 2002. All rights reserved.
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