CHINA TELECOM AND its bankers can heave a sigh of relief after its scaled-down offer managed to get away yesterday, saving bonuses, reputations and possibly the country's privatisation-driven industrial restructuring programme. Its eventual success was no thanks to the botched attempt to raise interconnection fees for IDD calls - seen by many as a last-ditch effort to bolster the issue - which provoked outcry in Hong Kong. Judging by the clarity with which the issue was handled, China Telecom and its regulator, the Ministry of Information Industry (MII), must use a string and two tin cans to communicate. The two have been passing the buck for the past week and it is still unclear who ordered it. It started out as a company initiative. China Telecom chairman Zhou Deqiang, said last week: 'Actually we think the current interconnection charge is a bit too low and we have actually filed a proposal with the MII to raise the interconnection charge.' As the controversy ballooned, the MII was flooded with calls from the media and said it would make an announcement 'as soon as possible'. The head of the MII's information office told the South China Morning Post on Saturday he was awaiting the instruction to issue an announcement, but nothing appeared. Then, on Saturday, Premier Zhu Rongji weighed into the controversy, saying during his visit to Cambodia: 'The issue is related to the enterprises but it does not involve any violation of regulations.' Mr Zhu said the regulator had approved the 8.5-fold rise in termination fees, from two US cents to 17 US cents, but that it was essentially a company matter and 'the government can only play a co-ordinating role'. The MII's attitude shifted following Mr Zhu's statement. Asked on Tuesday what had happened to the ministry's announcement, MII spokesman Wang Lijian said: 'Is it still necessary to make any announcement? Did Premier Zhu not say clearly that it is the enterprise's act? Go ask the carriers; it's between them.' A day later, China Telecom issued a revised offering document that stated unequivocally minimum termination rates for IDD calls were set by the MII. Whether the company or the regulator was behind the rise is more than an academic distinction. If China Telecom was the instigator, it could fall foul of United States regulations (again) for failing to disclose all material information in its prospectus, the legal document on which investors are supposed to rely. However, the company has left itself a get-out clause. Media coverage did not always distinguish between the company and its parent China Telecommunications Corp, the company said on Wednesday. It disclaimed any statements that were inconsistent with its new prospectus. Mr Zhou is also chairman of the parent, so perhaps he was not speaking with his public-company hat on when he made last week's comments on interconnection fees. Semantic games might get China Telecom off the hook with the SEC, but are unlikely to cut much ice with investors. Fund managers who declined to subscribe to the issue are likely to have been confirmed in their decision by the IDD mini-fiasco. The rise in interconnection fees was supposed to burnish China Telecom's earnings prospects and make its offer more appealing. Instead, it drew attention to a murky and fickle regulatory playing field that, while supposedly working in overseas investors' favour in this instance, could later be turned against them. That message, at least, should be ringing loud and clear for future mainland privatisation hopefuls. Jake van der Kamp will return on November 20. yukmin.hui@scmp.com
