2. Asia Telecom Industry Forum Reform Process and Development Situation of China Telecom Industry Prof. Hao Weimin Vice President & Secretary General China Association of Communication Enterprises Vice Chairman, President China Orient Telecomm Satellite Company Ltd. Nov. 30, 2002 Hong Kong

3. Asia Telecom Industry Forum Outline Section 1. Reform process * Objective and Measures * Industry Reorganization * Open market Section 2. Development situation (1) * Rapid increase of Market Volume ( number of users ) * Market competition plays its role * Service quality improved * Service price reduced

4. Asia Telecom Industry Forum Section 2. Development Situation （ 2 ） * Revenue increase recovery * Expanding of customers scale * The situation of increase of customers in the first half year * Competition pattern changed * Market share of operators Outline

5. Asia Telecom Industry Forum 1.1. Target and Measures Objective * Separating government and enterprises ， ensuring the independent administrative supervision by government departments; * Breaking monopoly, improve the engendered issue of low efficiency ; * Protect competition, promote telecommunication enterprise to improve service, cut down price level and strengthen competition capacity ； * Adapt to the development of market economy, establish modern enterprise system of clear legal rights and obligations

6. Asia Telecom Industry Forum 1.1. Target and Measures Measures * Introduce competition, reorganize China Telecom and other telecommunication enterprises; * Support China Unicom and other newly risen enterprises; * Open market ： allow CNC and CRC etc. to enter telecom operation market; * Fulfill the promise of entering WTO, allow foreign investors to operate telecom business in China; * Refine market competition structure and promote the forming of the effective competition..

7. Asia Telecom Industry Forum 1.2. New Pattern in China Telecom Market DirectorateGeneralin China Post before1999.5 1999.5 China Telecom 1999.5 China Mobile 2001.12 China Satcom In 2000 CRC 1994.7 China Unicom In 1999 Guoxin Paging was put under China Unicom 2002.5CNC 2002.5 China Telecom Group (Southern 21 provinces) In 2002 CNC and Jitong merged with Northern 10 provinces Other small and medium- sized enter- prises over 40 00 Paging; 1300 ISP: 1500ICP:1400 Directorate General of TelecominMPTbefore1995.4

8. Asia Telecom Industry Forum 1.3. Industry Reorganization * Government restructuring state-owned properties; * Introduce new telecom operators such as CNC, CRC; * Promote the rapid development of China Unicom, CNC and other newly risen enterprises; * Telecom charges tend to fall due to price adjustment by government and market competition; * Meanwhile, thousands of value-added services providers entered into telecom market to develop their business.

9. Asia Telecom Industry Forum 1.4. Main features in China Telecom Market at present: * At the beginning stage of market competition; * Competition pattern formed of many operators participating in the market; * Legal system gradually improved; * Plural investors; * Very fast development speed; * Relatively quick improvement of service quality; * Advanced technology; * Vast market potential and bright future

10. Asia Telecom Industry Forum 1.5.China Telecom Industry is in a Period of Transition Past ： monopolyperiod Present(transitional period ）： limitedcompetition Future ： period of effectivecompetition

11. Asia Telecom Industry Forum 1.6.Operators are changing Beforereform:soleoperator Afterreform:manyoperators Problems in the new competing environment: 1. Disputes on network connection is apparent; 2. Price war in telecom service has become violent ； 3. Proper allocation of resources is the condition of fair competition.; of fair competition.; 4. Enterprises tend to focus on improving services; 5. Overall coverage of service is facing new difficulties difficulties

12. Asia Telecom Industry Forum 1.7. Plural Investments China telecom industry foreigninvestment State-ownedinvestment privateinvestment

13. Asia Telecom Industry Forum 1.8. Achievements and Defects of the Reform Achievements: * Market competition pattern formed; * Development trends maintained as rapid, stable and sustainable; * Public satisfaction level improved on telecom service; * Telecom industry plays prominent role in national economy and social informationalization

14. Asia Telecom Industry Forum 1.8. Achievements and Defects of the Reform Problem to be settled: * Unfair and ill-purposed competition occurred sometimes; * Asymmetric rights and responsibilities of the supervision bodies, resulting in their lack of capability in legally enforced administration; * Enterprises’ comprehensive competitiveness need improvement; * Overall coverage service mechanism wait to be established.

15. Asia Telecom Industry Forum 2.1. Increasing Market Scale 0 5000 10000 15000 20000 4070 5494 7031 8472 10840 14400 17933 *fixed telephone users 1995199619971998199920002001 19900 2002`6

16. Asia Telecom Industry Forum 2.2. Expanding Users Group 0 5 10 15 20 25 30 80`85`90`95`00`02`3 Popularization rate of telephone Popularization rate of main lines 02`6 Development of telephone （ set ） （ set/100 people ） ） （ line/100 people ）

17. Asia Telecom Industry Forum 2.3. Increasing Customers Increasing of the number of mobile phone users (ten thousand ) 0 2000 400 0 600 0 800 0 1000 0 1200 0 14000 1600 0 18000 19951996199719981999200020012002.6

18. Asia Telecom Industry Forum 2.4. Increasing Customers Increasing of the number of Internet users （ ten thousand ） 0 500 1000 1500 2000 2500 3000 199419951996199719981999200020012002.6 1820 67 210 890 2250 2922 3700

19. Asia Telecom Industry Forum 2.5. Market Competition Played Its Role * Basic telecom service providers raised to 6 ； and value- added service providers reached to several thousand; * Mobile telecommunication developed rapidly, playing a substitution effect in the fixed phone service market and took off a large market portion away; Role of enhanced competition ： * The charges of service continued to go down in a reasonable or unreasonable way ： * To obtain competition advantage in the market, enterprises notably raised their enthusiasm as well as the ability in developing new business.

20. Asia Telecom Industry Forum 2.5. Market Competition Played Its Role Results of enhanced competition ： * Enterprises’ market promotion awareness increased, and the number of new customers keeps increasing; * Enterprises put more emphasis on improving service quality and reduction of users’ complaints ； * Illegitimate competition occurred sometimes and disputes on network connection increased, government supervision difficulty increased ； * Business development plan displays importance, as its impact on market competition is obvious

21. Asia Telecom Industry Forum 2.6. Achievements and Defects of the Market Development Achievements * The total number of users of fixed and mobile telephone ranks No. 1 in the world and still keeps increasing; * The technical performance of network keeps in line with the leading level in the world; * The increase of the revenue is higher than that of GDP; market promising; * The telecom market tends to see a stable expansion; * Foreign and domestic investors keep active investment activities. Insufficiency * The pattern of effective market competition hasn’t been established. Government supervision capability limited and not efficient; * Enterprises’ comprehensive competitiveness is limited and State-owned enterprises need further reform; * Unbalanced development in various regions;Telecom service level in western region and rural areas is still low, which adds the pressure for overall coverage service; * A few enterprises attempt to hold back rivals by using illegitimate ways; * Pressure of regional over supply exists

22. Asia Telecom Industry Forum 2.6. Achievements and Defects of the Market Development * The pattern of effective market competition hasn’t been established. Government supervision capability limited and not efficient; Insufficiency * Enterprises’ comprehensive competitiveness is limited and State- owned enterprises need further reform; * Unbalanced development in various regions;Telecom service level in western region and rural areas is still low, which adds the pressure for overall coverage service; * A few enterprises attempt to hold back rivals by using illegitimate ways; * Pressure of regional over supply exists

23. Asia Telecom Industry Forum 3.1. Recovery of the increase of Telecom Business Revenue Increase of telecom business revenue in the first half in 2002 International business Data communicati on Domestic long- distance call Local network communication Mobile communicati on 0 200 400 600 800 1000 Unit ： 100 million yuan 44.1 36.8 50 84 222.44222 497.8 565 724.41 920.6 First half in 2001 First half in 2002

24. Asia Telecom Industry Forum 3.2. Business Income Distribution The proportions of various business in total telecom income in the first half in 2002. Mobile communication business became the largest business revenue sector in the whole industry Mobile communication Data business Others Domestic long-distance call Local network communication Local network communication International business International business 48% 6%2% 4% 11% 29%

25. Asia Telecom Industry Forum 3.3. Increase of users in the first half year 0 5000 10000 15000 20000 Fixed phone Urban phone Rural phone Mobilephone Total number of users New users in the first half year 19900 1900 12500 1385 7411 605 17600 3135 Unit:ten thousand

26. Asia Telecom Industry Forum 3.4. Geographical Distribution of Telecom Customers Western part 19 ％ Middle part 29 ％ East part 52 ％

27. Asia Telecom Industry Forum 3.5. Market Share of Operators in the First Half Year 38 ％ 11 ％ 1％1％1％1％ 33 ％ 17 ％ China Telecom CNC China Mobile China Unicom CRC

28. Asia Telecom Industry Forum Thanks