The Ministry of Industry and Information Technology (MIIT) has issued a draft Proposal for Mobile Virtual Network Operator (MVNO) Business Trial (the "Proposal") for public comment on January 8, 2013.

The Proposal is an implementation of the “Implementation Opinions on Encouraging and Guiding Private Capitals to Further Invest in the Telecommunications Industry” (the “Opinions”) issued by MIIT in June 2012. The Proposal opens the door for domestic non-state-owned companies. MIIT is soliciting public opinions until 6 February 2013.

Definition and Classification of MNVO

The draft Proposal defines an MNVO as a carrier which buys mobile telecommunications services from a basic telecommunications services (BTS) provider, rebrands the services and resells the services to end users. In addition, the draft Proposal lists the following characteristics of MNVO: does not build its own infrastructure, must establish a customer support service system and can set up business operation platform and other supporting system, depending upon needs. Please note that the Proposal expressly states that the MNVO business does not include reselling of satellite communication services.

Even though that the draft Proposal identifies the MNVO business as Category Two of BTS, the draft Proposal provides that the MNVO business shall be subject to management requirements for value-added telecommunications services (VATS).

Requirements for Applicant

Based on the provisions listed in the PRC Telecommunications Regulation and the Measures on the Administration of Telecommunications Business Operation and applicable to VATS, the draft Proposal sets forth the detailed requirements and requested documents for government approval. Please note that the first requirement for approval is that the applicant must be a domestic non-state-owned company (中资民营企). However, neither the draft Proposal nor other PRC regulations provides a definition of “domestic non-state-owned company”. It is commonly supposed to be a domestic company, excluding a stated-owned enterprise, collective enterprise or foreign-invested enterprise. Thus, the draft Proposal does not introduce any changes to market entry thresholds for foreign investor in the field.

In addition, the applicant shall have the appropriate professional personnel for carrying out the business activities. The draft Proposal sets out the detailed requirements concerning work experience of the person in charge and senior or equivalent technical title of the staff in the information, telecommunication and relevant fields.

In the meantime, the Proposal also requires that the applicant have the business place or distribution channels suitable for the resale business, adopt service quality warranty measures, set up after sales systems, and adopt a plan for appropriate handling after exiting the market.

Trial Period

The trial period is initially set for 2 years, and the intended domestic non-state-owned companies can submit applications for the mobile telecommunication resale business within the first year after the trial begins.

Supportive Measures

The Proposal also provides supportive measures in 12 aspects including mandatory requirements for BTS providers to sign up at least two MNVOs. The whole-sale price offered by the BTS provider to the resale company shall be lower than the most preferential resale price for the same type of business in the local market. The BTS provider shall not conclude an agreement containing exclusive clauses with the resale company. The resale company can carry out business using pre-payment, but the pre-payment shall not exceed the service fee for one year, provided that the resale company can produce the proof for warranty measures for long term services. In the case that the resale company terminates the trial business early, the users developed by the resale company generally shall be taken over by the BTS provider offering the basic network.