As is widely reported, China has finally unveiled its plan to restructure its telecommunications industry to pave the way for the issuance of 3G licenses. Post reorganization, each of China Mobile, China Unicom and China Telecom will be awarded a 3G license using the TD-SCDMA, WCDMA and CDMA2000 standard, respectively. An important aim of this reorganization is to expand into the 3G technologies and concurrently consolidate the industry and improve competition in the mobile sector—currently dominated by China Mobile.
In order to reduce the current market dominance by China Mobile and to create a “balanced development” of this industry, the Ministry of Industry and Information ("MII") is ready to impose asymmetric regulations on the three operators. These could include a ceiling for China Mobile’s market share and onerous Mobile Number Portability rules. Additionally, penalties will be imposed for non-compliance to the guidelines on interconnection and network sharing and roaming. Roaming rates will still be set by the government, but will eventually be market based. The new regulations also hint at market liberalization by encouraging the incumbent companies to make room for new entrants, although the specific requirements for yielding market share were left unspecified.
It is unclear how successful these regulatory measures will be given that China Mobile has a disproportionate market share and a healthy war chest to continue expansion and maintain its dominant position. In any case, as we have seen from mature 3G markets, its success critically depends on the attractiveness of available content. Without media that is entertaining, mobile users will not subscribe. Yet, 3G operators will need licenses from both the State Administration of Radio, Film and Television ("SARFT"), the content regulator and the MII, the network regulator. Thus until consensus is reached between the SARFT and the MII on how to streamline the regulations for 3G, it will be difficult for the 3G operators to successfully attract subscribers. Though there have been many rounds of talks of cooperation between the SARFT and the MII, no concrete licensing policy or plan has been announced. While ensuring a more competitive mobile communications market will benefit consumers, it is unclear how much value the introduction of 3G technologies will generate. Moving forward, the three players will have to cooperate and devise a reform proposal keeping to the spirit of these guidelines. Hopefully this round of consolidation will both increase competition and reduce redundancy, leaving the operators with more capital to provide better services to the customers.