BEIJING-China’s telecom scene is in flux. China Telecom is to split into four parts, which will compete in two year’s time. China Unicom took over four experimental CDMA networks from China Telecom Great Wall and is making aggressive plans to roll out a 10-million-subscriber CDMA network by the end of 2000. Meanwhile a dark horse, centered around the Ministry of Railways’ network, is raising its head.
China Unicom plans to spend US$845 million on CDMA networks this year, which will have an initial capacity of 2.6 million subscribers, growing to 10 million in 2000 The networks are expected to cover 250 cities and 40 million people by 2003. The company plans to select two or three suppliers from among Ericsson, Lucent, Motorola, Nortel and Samsung, which will be forced to offer significant technology transfers in order to win the contracts.
China Unicom recently became a member of the CDMA Development Group.
In addition, former China Telecom subsidiary Guoxin Paging, the country’s biggest paging operator, was transferred to China Unicom earlier this year, bringing its new parent US$1.57 billion in assets.
However, it is still an uphill battle for Unicom. In central China’s Hubei province, regulators stopped the company from offering cut-rate fees for new mobile phone services.
Financing its grandiose plans will not be easy either. So far, China Unicom has always fallen short of its own targets, cornering less than 3 percent of the mobile phone market against its stated goal of 33 percent by 2000. Lack of financing has played a significant role in this.
Now the company is considering a public stock offering of more than US$1 billion on both the Hong Kong and New York stock markets in one of the largest stock offerings by a Chinese company.
Plans are still in the preliminary stage, however, and skeptics doubt whether the still powerful Ministry of Information Industry (MII) will allow such a huge cash injection for China Telecom’s main competitor to go ahead.
Following Premier Zhu Rongji’s trip to Washington in April and China’s dramatic market opening proposals to gain access to the World Trade Organization (WTO), MII Minister Wu Jichuan reportedly tendered his resignation. Since the mistaken NATO-bombing of the Chinese Embassy in Belgrade and rejection by the Chinese government of the official U.S. explanation, negotiations have been put on hold and Minister Wu’s position seems to have strengthened. Chinese officials have denied that the minister planned to resign.
Meanwhile, China Telecom is fostering its own kind of competition with a planned break-up slowly gathering steam. In 1995, the then Ministry of Posts and Telecommunications registered China Telecom as an independent legal entity with fixed assets of more than 600 billion yuan (US$73.6 billion) and more than 1 million employees.
On February 4 this year, the break-up of China Telecom into four companies was announced, which will create China Telecom Group Corp., China Mobile Telecom Group Corp., China Paging Telecom Group Corp. and China Satellite Telecom Group Corp.
The four companies may enter each other’s business spheres after two years.
In mid-June the MII set up a preparatory group headed by Su Jinsheng, director of the Mobile Communications Bureau, to prepare the setup of the first in line: the China Mobile Telecom Group.
China Telecom’s listed Hong Kong subsidiary China Telecom (HK) is already raking in profits. The company announced at its annual general meeting 16 June that in the January-to-May period its subscriber base rose by 1.89 million customers to more than 8.42 million. The company, which owns GSM networks in the three Chinese provinces of Guangdong, Zhejiang and Jiangsu, earned a net profit of US$847 million last year.
Set-up fees for new mobile phone subscribers might be waived in the coming two years to attract still more customers. While the company is focused on the mobile phone business for now, Chairman and President Wang Xiaochu indicated that in the future the company might invest in international and Internet Protocol (IP) telecommunications.
In other competitor news, the Ministry of Railways plans to set up the China Railway Telecom Group by upgrading its existing telecom network, which at present has only 1 percent of China Telecom’s capacity. The Ministry of Railways, which is also a shareholder of China Unicom, would then enter the GSM service business. The State Administration of Radio, Film and Television (SARFT) is also moving into the telecom business, using its nationwide cable television network.
While the mobile phone boom continues unabated, paging companies are feeling the heat. As long as the two-way charging scheme is kept in place, many customers still hold on to their pagers. Subscribers at the receiving end of a mobile phone call pay part of the costs of the call, spurring many penny-pinchers to shut off their mobile phones and rely on their pagers to be reached.
Still, more and more subscribers are ditching the venerable pager altogether, causing headaches to the more than 2,000 paging operators, most of whom fail to garner a sufficiently large customer base to become profitable. Some paging operators now offer new services such as access to e-mail and news without having to dial into an Internet service provider in an effort to retain customers.
There are now more than 30 million mobile phone subscribers and 60 million paging customers.
