Development and Regulatory System Reform of Telecommunication Industry in China LIANG Xiongjian College of Management & Humanities Beijing University of Posts & Telecommunications, P.O.Box Xi Tucheng Road, Beijing, China,

Content 1. Development of Telecommunications in China 2. Evolution of Regulatory System Reform of China’s Telecommunication Industry 3. The reform for the China telecom regulation 4. Influence of Regulatory System Reform to China’s Telecommunication Industry 5. Some Issues on the Reform

1.Development of Telecommunications in China Achievements Review China telecom industry needs further development Objectives

Achievements significant achievement in telecommunications over last about 50 years.

Fig.1. The Development of Telephone Density in China

Fig.2. The development of mobile telecommunication

Table 1. The Development of Telecommunications Services and Capacity unit Long- distance Telephone Circuits million Automatic Toll Switching Capacity million Central Office Exchanges million Telephone Subscribers million Mobile Subscribers million Paging Subscribers million

Fig.3. Developing Trend of Total Turnover of Telecommunications in China (In Billion RMB) The total turnover of telecommunications reached billion RMB in 1999, increasing by 27 times more than billion RMB in The proportion of whole-national total turnover of telecommunications in total turnover of posts and telecommunications has risen from 67.5% in 1990 to 94% in 1999.

Review In the early days after the People’s Republic of China was just set up in 1949, it only held the capacity of switch system with over 310 thousand lines, and 208,750 telephones subscribers. The telephone density is only 0.05%. So Telecommunications, as a foundational industry, was very unstable at that time. From 1949 to 1977, telecommunications developed very slowly in China because the role of telecommunications in national economy couldn’t be recognized correctly. –By the end of 1977, the telephone density was only 0.36%, increasing less than 0.02% every year.

Review Since the beginning of reform and opening in China, the significance of telecommunications was recognized gradually. The state government brought forward some policies, such as first-installation fee of telephone, in order to support the development of telecommunications. It was very important to the development of telecommunications afterwards. As a whole, since the reform and opening policy, the development of telecommunications has undergone four periods in China. –The first period ： from 1978 to 1984 –The second period ： from 1984 to 1989 –The third period ： from 1989 to 1997 –The forth period ： from 1998 to now.

The first period ： from 1978 to 1984 In order to meet the needs of economic development, the State Council offered some special policies on telecommunications field, such as low tax, etc. The Ministry of Posts and Telecommunications (MPT) decided to transfer its first priority to the modernization of telecommunications so that telecommunications better served the modernization of Chinese economy.. –During this period, the development of telecommunications insisted on some principles,. The first priority problem to deal with was to release the pressure of telephone capacity shortage in big cities. –MPT has begun to charge the first-installation fee of telephone. –At the same time, MPT began to actively introduce into foreign fund, modern technologies and management methods to drive the development of telecommunications. In 1982, the first SPC in China was introduced into and installed in Fuzhou, which indicated the beginning of new period of telecommunications.

The second period ： from 1984 to 1989 In this period, Chinese economy was rapidly growing. the demands for telecommunications was increasing speedily, which posed great strike on telecommunications of China. some favorable policies approved by the State Council. In addition, local governments also supported its development greatly. All of these accelerated the development of telecommunications. It signed the beginning of high-speed takeoff of telecommunications in China.

The third period ： from 1989 to 1997 In this period, telecommunications in China has been developing with great speed. The size of telecommunications network has been quickly enlarged year by year, with advanced technologies. The capacity of telecommunications network has been increasing. Since 1989, the former MPT has emphasized researches on management, which became urgent to the modernized telecommunications network. MPT began to adjust the network structure, and organized training program to administrative personnel for the transition from the manual network to the automated network. Up to 1997, telecommunications network of China has developed into the second big telecommunications network in size in the world. With the development of network, the management of network began to step into a new period.

The forth period ： from 1998 to now Deregulation With the establishment of China Unicom, the monopoly in telecommunication service sector was broken. Competition drives the development of telecommunications in China. Considering of the development and competition in the future, especially after China enters WTO, further reforms are going on. The telecom. network is the largest in the world

China telecom industry needs further development Although China telecom industry gains great achievement, the tasks we are facing are very difficult. –The telephone density in China is only 33.7%, there’s big gap between China and the developed countries. –By the end of 2002, there are 14.7% villages which can not get the telephone service. The telecom need develop further.

Objectives China has a big potential of telecommunication market, since there is about one-fifth of whole population in the world. Although the telephone density in china has reached 33.7% in 2002, it is still low by comparing to developed countries. It is expected that –the number of fixed telephone subscribers of China Telecom will be more than 270 million in the year of 2005, increasing by 9% each year, –The number of mobile data service subscribers of China Telecom will reach around 40 million also. The general aim in 2005 –Satisfy the need of the economy and the society development, and the scale of the telecom network, the technologies and services level will be the first-class in the world.

2. Evolution of Regulatory System Reform of China’s Telecommunication Industry From 1950’s to 1980’s, the government and the enterprises combined together. The Ministry of Posts and Telecommunications(MPT) monopolized the telecom industry From 1980’s, China telecom industry began to reform and reorganize its structure. TimeEvents Aug,1993Nine non-basic telecommunication services opened for competition Jul-94China Unicom founded Apr-95China Telecom separated from MPT Apr-98MII founded,China Telecom and China Post separated as 2 enterprises Mar-99China Telecom reorganized and was divided into 4 parts Aug-99China Netcom Company founded Dec-00China Railway Company founded May-02The new China Telecom and new CNC founded

SET UP A NEW MINISTRY- MII

3.The reform for the China telecom regulation The reform in telecom operation system needs the reform in the regulation organization and regulation policy. The main point lies in the market regulation and price regulation. In 1998, the telecom Administration Bureau was founded, it is the regulator to the China Telecom market, it is independent to the operator and the manufacture companies. After the reorganization on May 2002, the “5 ＋ 1” new structure was founded. –The new operators are: China Telecom, China CNC, China Mobile, China Unicom, China CRC and China Satellite. –The original China Telecom companies in the south of China use the brand of China Telecom, the original China telecom companies in the north of China are combined to new CNC. The original CNC and Jitong have been combined to the new CNC too.

The content of the telecom regulation reform The content of the telecom regulation reform should contain the following section: –Constitute the Telecom Act. –Put forward the new telecom regulation policies,introduce competition into telecommunications such as the universal service fund, asymmetric regulation to the new operators, new tariff regulation policy. –Make sure the different services can be calculated respectively, to prevent the cross-subsidy. –Evaluate the regulation policies and the competition situation periodically and make the new regulation policy to suit for the new situation.

4. Influence of Regulatory System Reform to China’s Telecommunication Industry It is no doubt that the system reform of China’s telecommunication regulation in 1998 will have a significant effect.. The telecommunication industry will become a new growth point of the national economy and find its position in the international market.

The divergence between government and enterprise functions will guarantee that the fair competition of telecommunication market is standardized.

5. Some Issues on the Reform We should say that the 1998 reform is very significant to telecommunications industry in China. One separate regulatory organization was formed. Thereafter telecommunication service market has changed However, considering of the development of telecommunications in China and the challenge telecommunication operators will face, we should say that the reform should go further deep.

The reform should go further Legal system should be established as soon as possible. Telecommunication Law should be an important tool for the regulatory organization to regulate operators in a competitive environment. Competition system should be improved further. Although competition has been introduced into the telecommunication service market, a fair competitive environment has not formed. In order to realize it,. The regulatory system should be improved further. It is very necessary when foreign telecommunication operators enter into Chinese market. We hope that the regulatory system reform will see a prospective future of telecommunication industry in China.

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