On June 27, 2012, the Ministry of Industry and Information Technology of China (“MIIT”) issued the Implementing Opinions to Encourage and Guide Further Investment of Private Capital in the Telecommunications Industry (“Opinions”).

The Opinions are in line with a package of favorable policies in relation to investments to be made by private capital issued by the State Council in 2010. The principle is to further open up the China telecommunications industry to private companies and broaden their investment channels. Private companies are encouraged to engage in the following activities:

  1. To hold non-controlling shareholdings in basic telecommunications (“BT”) enterprises. BT enterprises are encouraged to be listed on domestic stock exchanges to attract private investment by reducing the proportion of state-owned shares or subscribing increased capital of listed companies by private capital.
  2. To engage in mobile telecommunications’ resale businesses, network access services (on a trial basis), customer premises network services (on a trial basis) and network hosting businesses. These services are defined as a type of BT business.
  3. To engage in value-added telecommunications businesses. In particular, the MIIT will clarify policies to open internet data center businesses and internet access businesses to private capital. The MIIT ceased to accept any application for internet data center permit and internet access service permit in 2009.
  4. To participate in the investment, construction, operation and maintenance of base stations and communications towers.

The most significant of these Opinions is to open up the BT business to private capital. To date, the BT businesses remain dominated by the largest state-owned carriers. It is expected that private capital will become more involved in basic telecommunications services in the future and this increased competition will be good for both the market and the consumers.

The timeline to issue specific rules to implement the Opinions is unclear. Further, the Opinions are silent on the involvement of foreign investment in these areas. Although China committed to open up BT businesses to foreign investment after joining WTO, in practice the MIIT does not currently accept applications from foreign investors to operate a BT business in China and this position is unlikely to change in the near future.

Even if private enterprises engage in BT businesses in the future, concerns over state security and information security make it questionable whether variable interest structures could be adopted in the BT industry as they have been in the value-added telecommunications industry.