New | Opening of China’s fixed broadband market may falter without regulated pricing

Beijing’s plan to widen private enterprise participation in the mainland’s fixed-line broadband market may falter, similar to the liberalisation effort in the mobile sector, because entrepreneurs will be hard-pressed to eke out a profit.

Under a consultation paper released by the Ministry of Industry and Information Technology last week, qualified private companies will be able to build an access network and source bandwidth capacity from the mainland’s three nationwide telecommunications operators so they can resell fixed-line broadband services under their own brands in 16 cities across the country over a three-year trial period.

The draft policy’s stated goals are to step up infrastructure development, improve service quality and promote market competition.Its “private ownership” business model slated for trials required more investment and provide higher potential margins, compared with the “cooperative” and “resale” models also suggested in the consultation paper.

Industry analysts, however, indicated that the lack of regulated wholesale pricing in the new policy would put participating companies at a disadvantage in negotiations with the large, incumbent broadband network operators like China Telecom and China Unicom.Chris Lane, a senior analyst at Bernstein Research, said in a report on Monday that the private ownership model gives participating companies “an opening to cherry-pick attractive areas – such as new developments where gaining access is easier and cheaper”.

He added, however that new entrants “typically need to discount heavily to attract users … this practice puts further pressure on returns”.

In addition, the incumbent operators are also expected to discount aggressively in those areas where they have to compete against start-up broadband operators.