This year will be a bumpy one for China's telecommunications sector with serious regulatory risks, intensifying competition and slower growth expected. Analysts are expecting the introduction of universal service obligation (Uso), enactment of the long-awaited telecoms law and the restructuring of the Ministry of Information Industry (MII) this year. 'We expect the MII to make headway in pursuing issues such as USO, by which rural network build-ups are subsidised from taxes levied on operators in more profitable areas,' Lehman Brothers' Alan Hellawell said. DBS Vickers Securities' Wallace Cheung said: 'Central government policy is to develop the economy of the central and western provinces. 'Telecoms networks will be one of the key infrastructures to be built for economic growth.' Wu Jichuan, outgoing Minister of the MII, said last month the setting up of Uso was the top agenda of the ministry to solve the serious divergence in tele-density between the wealthier coastal provinces and less-developed inner central-western provinces. Analysts expected telecoms firms would have to contribute 1 per cent to 3 per cent of their revenue to the Uso fund to help subsidise network construction in unprofitable rural areas. DBS said that if the Uso fund charged 1 per cent of the carrier's revenue, China Unicom would take the biggest hit facing a 6.9 per cent reduction in net earnings, followed by China Telecom's 4.1 per cent and China Mobile's 2.9 per cent decline in earnings. However, Mr Hellawell argued the Uso charges should be a net-positive for the market and investors as a more transparent calculus was developed in guiding the growth of the telecoms network in the second- and third-tier provinces. Even without the Uso charges, analysts had already factored in a slowdown in subscriber and earnings growth in China's telecoms industry. Mr Hellawell said: 'We expect more moderate growth in both landline and mobile subscriptions in 2003, as the incremental economics of growth decline.' ABN Amro projected China would add 77.19 million lines (fixed and wireless) this year, compares with last year's estimated 99.4 million. Analysts are expecting to see major changes at the telecoms regulator, which would also create uncertainty in the industry. ABN Amro regional telecoms research head Joe Locke said: 'It is pretty clear that Wu Jichuan will step down and with that it is likely a merger with the State Administration of Radio, Film and Television will be completed. Regulatory risks are likely to look worse than they are this year, but I am not sure if this will surprise anyone.' It has long been rumoured that Beijing intends to merge the telecoms regulator with the media regulator, sidelining MII's role.