Current and Future Regulation Challenges for the Chinese Telecommunications Sector

5th Communication Policy Research South Conference (CPRsouth5), Xi'an, China

12 Pages Posted: 16 Dec 2010

See all articles by He Ning

He Ning

affiliation not provided to SSRN

Date Written: December 6, 2010

Abstract

For Chinese telephony, the new restructuring scheme - designed to boost efficiency and create three full-service operators is completed by the end 2008. This paper studies the regulatory trajectory of the telecommunications industry in China. Different stages of the regulation process with policy intervention and market competition are examined. The interaction of different players like the Chinese government, incumbent operator, and competitive operator is analyzed.

In the paper, two general theories of regulation, public interest theory and the economic theory of regulation are firstly introduced. Theses literatures are later used to explain the current regulatory particularities of Chinese telephony.

By now it is obvious that the Chinese telephony reforms itself successfully, however, Convergence happened recently has created a set of new dynamic issues and great challenges in the industry, first of all, the sector still suffers from continued and excessive political involvement in the regulatory decision-making process. The role of MIIT, as China’s telecommunications regulator, raises questions about independence and impartiality. Secondly, to achieve a healthy and sustainable growth, the PRC telephony has been in great need of a telecommunications law. Although a new PRC Anti-Monopoly Law (AML) was enacted on August 30, 2007 and took effect on August 1, 2008, the AML is unlikely to effectively foster competition in China’s telecom industry. Importantly, both the ex ante specific-regulation and the ex post competition policies should operate jointly in the telecommunications industry. Thirdly to fully solve the current problems of telecommunication interconnection, service pricing tariff, universal services, it’s vital that the traditional administrative controlling method should be substituted with the operator’s cost information surveying, and Chinese telecommunication pricing models are in urgent need to monitor the cost of the operator. The final regulatory proposal to Chinese telephony is introducing SMP (significant market power) regulation to accelerate the completion of Chinese telecom market. As China Mobile Limited, the leading carrier leads the Chinese wireless telecommunication services market, with 72.1% of the market's volume in 2009. The Significant Market Power (SMP) are important tools for the MIIT who will take all necessary measures, whether preventive (i.e., before abuse of Significant Market Power) or remedial (i.e., after abuse of Significant market Power), to promote fair competition and ensure a sustainable competitive market. Generally speaking, to develop a transparent, pro-competitive, and effective telecommunications industry, there is much work that the Chinese government needs to complete.

Concerning methodology, note that this paper does not follow a standard research approach (empirical modeling), but builds on insights from existing literature, and a process-mapping technique is used to visualize the key drivers of the Chinese telecom regulation. Data were collected from the media and other primary sources. The ABI/Inform database was used. This article aims at contributing to the theoretical and practical policy discussions in two ways. At a conceptual level, it proposes an analytical framework for the design of regulation and the evaluation of the implications of Chinese telecom industry. At a practical level, the article aims at sensitizing policy makers to the challenges of current industry. Nevertheless, it is hoped that the points in this paper contribute to current regulatory policy debates in China.

Historically, two general theories of regulation have been developed to explain the regulation of telecom markets. The first of these, called the public interest theory, argues that the reason for regulation is to avoid market failure when an industry is naturally monopolistic. This theory presumes that the goal of regulation is to simulate competition where it is allegedly impossible because of economies of scale, and that this intention will, in fact, be carried out by the regulatory process. The second approach, popularized by Stigler and Peltzman is the economic theory of regulation. The essence of this approach is that regulators and politicians, like economic men, weigh the benefits and costs of various courses of action in a political framework where the attainment of a voting majority determines success.

To better appreciate the dynamics of the telecom sector regulation, it is helpful to think in terms of three generations of telecommunications. The first generation of Telecom was the traditional monopoly system, state owned, or tightly regulated. Technologically it was based on copper analog networks. Culturally it was shaped by an engineering and state bureaucracy. After the 1980s this first-generation system was transformed into a more open structure with liberalized entry, especially in wireless, privatized incumbents, and accelerating innovation. The second generation of Telecom is based on the concept of deregulation. Competition leads to innovation and enables deregulation. Government intervention, let alone ownership, is the problem to be overcome. This became the orthodoxy. But this was not the end of history in telecommunications. Technology took another major step forward, this time focused on fiber-optic and high-capacity wireless access networks. Whereas the first-generation created networks that operated at kilobit per second transmission capacity, the second-generation reached mass consumer operations in the broadband megabit range, almost a thousand times as fast. And the third-generation will operate at another thousand-fold increase in speed in the gigabit range.

The starting point of this paper was a research interest in transformed statehood in the Chinese telecommunications regulation, under the influence of liberalization, privatization, globalization and convergence. A central point in this paper is that Chinese regulatory practice may need a drastic overhaul in order to be able to accept convergence.

Keywords: telecommunications, natural monopoly, legislation, public Policy, the Significant Market Power (SMP), ex ante and ex post regulation

Suggested Citation

Ning, He, Current and Future Regulation Challenges for the Chinese Telecommunications Sector (December 6, 2010). 5th Communication Policy Research South Conference (CPRsouth5), Xi'an, China. Available at SSRN: https://ssrn.com/abstract=1725129 or http://dx.doi.org/10.2139/ssrn.1725129

He Ning (Contact Author)

affiliation not provided to SSRN ( email )

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