China's telecom test
No one can accuse Beijing of indecision in its telecommunications reform programme. Deregulation of former state-owned telecom monopolies remains a tortuous process in most advanced countries; China looks to be making the transition at light speed. Considering that only three years ago China Telecom was a government department that effectively regulated itself, that is a remarkable achievement.
Industry growth has been spectacular. China has the world's largest mobile telephone-using population and the second highest number of installed fixed lines. Its two mobile network carriers have raised $156 billion from foreign investors. Without the baggage of 'legacy' networks it has obtained state-of-the-art fibre cables and switching equipment.
Despite this success all is not well in the sector. Mobile operators have generated strong profit growth, but China Telecom, which runs fixed-line services, has seen revenues stagnate. Complaints against the behemoth, still run by bureaucrats, are at record levels. Attempts to foster a competitor fixed-line provider in China Unicom have largely failed.
Complicating matters has been tension between foreign stock investors seeking high profits and consumers wanting lower prices. This has caused a confusing stop-start process on mobile services tariff reform. The still sketchy plans for creating four 'universal service' carriers promises more dispute.
Foreign firms have bet on winning lucrative joint ventures with domestic operators under China's World Trade Organisation commitments. The emergence of four huge local carriers makes this less likely, while SAR-listed China Mobile and China Unicom face the prospect of more competition and forced entry into the fixed-line services market.
Information Industry Minister Wu Jichuan indicated on Tuesday a fortress-China approach, saying the new operators may have no need to pursue foreign capital-raising exercises. Beijing should avoid such an approach. Deregulation inevitably creates winners and losers, but a competitive and open telecommunications industry benefits the whole economy. Foreign investors should play a key role in that process.