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China's telecom transformation

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It looks bold and hugely ambitious. China telecommunications re-organisation, announced last week, has been touted as a big bang that will boost competition, stimulate investment and dramatically increase service quality. Beijing has won praise for ignoring vested interests and putting consumers first.

Only the bare bones have been outlined, but the core idea of four firms competing across the full spectrum of mobile and fixed-line services represents a giant leap from the monolithic bureaucracy that ran the industry only three years ago.

Overseas liberalisation experience offers cautionary lessons, reminding of the power wielded by well-capitalised incumbent firms in attacking new entrants and defending market share. It shows how official visions of an industry's evolution are rarely right, yet reinforces the importance of good regulation in making a genuinely competitive market work.

Getting telecommunications reform right is of huge importance to a scientific-progress obsessed Beijing.

President Jiang Zemin was a key mover in battling bureaucratic interests wanting to develop sector-based national champions in the telecommunications market. It offers a template for fostering managed competition in other industries given China's World Trade Organisation commitments.

Last year, Beijing announced plans to split national fixed-line operator China Telecom into separate firms serving the country's northern and southern regions.

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