Cover Story «˚›––MˆD Cover Story «˚›––MˆD The PRC Telecom The PRC Telecom Regulatory Regime: Regulatory Regime: Piecing Together the Piecing Together the Puzzle Puzzle Sweeping changes to the PRC telecommunications regulatory regime over the past year have laid much of Sweeping changes to the PRC telecommunications regulatory regime over the past year have laid much of the legal foundation required for China’s regulators and telecom operators to cope with the massive foreign the legal foundation required for China’s regulators and telecom operators to cope with the massive foreign investment expected after China’s accession to the World Trade Organization. Mitch D Dudek, David R investment expected after China’s accession to the World Trade Organization. Mitch D Dudek, David R Weaver II, Lucy Lan Xu and Richard Guoxing Qiang discuss the most significant regulatory developments Weaver II, Lucy Lan Xu and Richard Guoxing Qiang discuss the most significant regulatory developments and explore anticipated rules and regulations and explore anticipated rules and regulations Introduction domestic state-owned and private e n d o f Ju ly , fo r e x am p le , Since Marco Polo’s first visit in the sector Chinese companies from China had 286.9 million telecom 13th Century, China has been participating in this huge but largely subscribers, 19% of which were viewed by the Western world as untapped market. The past few years added in the first half of 2001. The a land o f b o th m y ste ry and have seen a clear split between number of mobile phone users commercial promise. Until recently regulatory authority and business dramatic ally inc reased in the there was certainly more mystery o peratio ns, whic h has led to first half of 2001 to 120.6 million than promise in the eyes of foreign sign ific an t in ve stm e n t an d surpassing even the US and making te le c o m o p e rato rs. Fo re ign c o m m erc ial partic ipatio n b y China the largest mobile phone investment in the industry was numerous state-owned companies market in the world. While the c o m ple te ly b lo c ke d b y no n- and some privately-owned domestic number of internet users in 2001 transparent rules and internal companies. reached only 26 million, growth in decrees, and until only a few years The more open and commercially this sector is tremendous. Revenues ago the telecom regulators also c o mpetitive enviro nment has for the telecom services sector in happened to be the key telecom resulted in tremendous growth in the first half of 2001 exceeded US$20 operators. This naturally frustrated virtually every sector of China’s billion. In preparation for the 2008 not only foreign investors but even telecommunications industry. By the Olympic Games, Beijing city alone WYER ›»· « fiv WYER ›»· « fiv 76 76 HO HO NG NG KO KO NG NG LA LA 09 • 2001 09 • 2001
Cover Story «˚›––MˆD is expected to invest US$3.6 billion detailed administrative rules, local branches with little room for in its info rmatio n tec hno lo gy catalogues and notices required to any outside participation. Beginning industries in the hope of hosting the implement the general principles set in 1994 China Unic o m set up most ‘wired’ Olympics in history. forth in the regulations, some of allianc es with numerous Sino- Given that the current penetration whic h have just rec ently been foreign joint ventures in an attempt rate for fixed-line telephones is only issued. to raise capital to compete with rival 13.2%, and a mere 9.2% for mobile What is clear is that the mysteries monopoly China Telecom. The joint phones, the market opportunities of China’s telecom past are gone, ventures, altho ugh o stensibly appear endless. China’s telecom present is putting prohibited from operating telecom But, with the exc eptio n o f the regulatory pieces into place and networks, effectively borrowed the m anufac turing c o nc erns and the commercial promise of China’s licence of China Unicom to provide those companies willing to throw telecom future is upon us. telec om servic es and shared in themselves into risky ventures with network profits. However, after The Telecom Past – no so lid legal b asis, fo reign tolerating the China-China-Foreign The Mysteries investors remain on the sidelines. (CCF) model for several years, The situation will quic kly and The Rules in September 1998 the Chinese dramatic ally c hange as China At the turn of this century China government c lamped down and implements its WTO commitments had yet to promulgate any significant specifically prohibited the CCF to gradually open up its telecom comprehensive telecommunications model. Sprint, First Pacific of Hong market to foreign participation. legislation. The PRC telecom sector Kong and France Telecom were While bilateral trade agreements was go ve rn e d b y pie c e m e al just a few of the more than 40 with the US and the EU in regulatio ns and unpub lished international telecom companies anticipation of WTO accession set internal decrees consisting mainly forced to extract their investments. the groundwork for opening up of administrative notices dealing The Telecom Present – value-added services more quickly with technical standards and service Putting the Pieces into and more completely than basic tariffs. On 1 September 1993, Place telecom services, China did not t h e Mi n i s t r y o f Po s t a n d previously have any clear regulatory Telecommunications (the MPT, the The Rules regime in plac e to make suc h telecommunications arm of which T h e T e le c o m R e gu lat i o n s , distinctions or to regulate what had later bec ame the Ministry o f pro mulgated by the PRC State hereto fo re been an industry Information Industry (the MII)), Council only last year, represent dominated by a few state-owned issued the Tentative Telec o m C hina’ s first c o m pre he nsive monopolies. Measures, which strictly prohibited telec ommunic ations legislation The c entrepiec e o f China’s foreign investment, operation and and provide the basic regulatory telec om regulatory regime was p a r t i c i p a t i o n i n t h e PR C framework required for China to finally put into plac e o n 25 telecommunications industry. This open its telecom sector to foreign September 2000, when the PRC prohibition was memorialised in the investment. This key piec e o f State Co unc il issued the PRC Guidanc e Catalogue of Foreign legislation provides for several Telecommunications Regulation Investment Industries (Investment c ritic al administrative areas. (Telecom Regulations). The new Catalogue) which specifically lists These include a licensing system Telecom Regulations, considered a the operation and management of whic h distinguishes b etween milestone in the gradual opening of telecommunications business as an value-added and basic telec om China’s telecom market, laid the industry category in which foreign operations; rules to govern the foundation for standardised and investment is prohibited. in te rc o n n e c tio n o f te le c o m transparent administration and n e two rks; an d guid an c e o n operation of the telecommunications The Market te le c o m rate s, allo c atio n o f industry in China. Significantly, it In the past China’s telecom industry re so urc e s c o n struc tio n an d calls for the issuance of additional was dominated by the MPT and its security. It is also clear from the 77 09 • 2001 ›»· « fiv HO NG KO NG LA WYER
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