1. 1 China Country Report FINAL INTERNATIONAL WORKSHOP ON RURAL ICT DEVELOPMENT Funding Mechanism

2. 2 Introduction of Funding Mechanism 1.The model in monopoly provider period Before the separation of government and enterprises and that of post and telecommunications in 1998, Chinas telecom universal service has been undertaken by China Telecom (former China posts and telecom bureau). The investment relied on Cross subsidy. Cross subsidyas from local phone installation fee, mobile phone network feeand high profit services. for example, long-distance services. There are two phases for Chinese rural communication development

3. 3 Introduction of Funding Mechanism 2.The model in competition provider period After 1998, with the development of pager and mobile services, the separation of high profit services, the cancellation of two types of charges (local phone installation fee and mobile phone network fee) and the competition in long-distance field, the internal cross subsidy cannot go further, the operator thus began to reduce the investment in the universal service. As a result, the universal service slowed its development speed. Under this circumstances, a new model of rural communications with Chinese characteristics set up. First, MII assigns projects of delivering universal service nationwide to 6 basic telecom carriers according to administrative geographic divisions. The carriers raise fund on their own to fulfil universal service obligation in prescribed areas by completing the assigned projects. Second, MII seeks support of local governments, asking local authorities and grassroots organizations to provide preferential policies and favourable conditions to keep the project cost low and ensure smooth implementation. Third, we utilize a variety of applicable technologies. China employs the latest mainstream communication technologies in remote rural areas.

4. 4 Introduction of Funding Mechanism The trend of Funding Mechanism in China In terms of the successful examples and experiences of implementing universal service worldwide, the most usual practice is to set up universal service fund. China has already embarked on establishing a universal service fund, but the process, which entails a variety of problems to be solved, will take a period of time. In the twelve five-year plan, build the telecom universal service fund is one of most important task. As China has entered into WTO, the market getting more open

5. 5 China Academy of Telecom. Research, MIIT. Teleinfo institute Tel 86-10-62301302 86-10-62301730 Fax 86-10-62304136 Email teleinfo@catr.com.cn teleinfo@catr.com.cn Thank you!