China's telecom companies are waging a price war amid the growing competition in the sector.

In the first half of this year, all seven basic telecom carriers have been bowing to growing pressure to keep their competitive edge by cutting prices. A price war on IP (Internet Protocol) telephony was ignited on the first day of the year by China Netcom, an emerging broadband network constructor who was dubbed by industry insiders the "carriers' carrier".

As a prepaid device for long distance calls, IP phone cards have received a warm welcome as they can help save up to 70 percent of long distance phone charges.

China Netcom has further reduced their charges by up to 50 percent, pricing domestic long distance calls 0.3 yuan (US$0.036) per minute and 2.4 yuan (US$0.28) for overseas calls.

China Telecom, China Unicom, Jitong and China Mobile have had to follow the move and reduced the prices of IP calls with a discounted pre-paid IP card.

"The basic reason for the price war is that the government gave the price-setting rights for IP telephony to individual companies instead of setting prices for them," said Wu Jichuan, the minister of the Information Industry.

The telecom industry would be more open, he said, if more rights were given to the operators.

In February, an even more significant event happened, again involving China Netcom.

In a private equity placement, four major investors, News Corp, Goldman Sachs, the China Construction Bank and the Bank of China, jointly bought 12 percent of the shares of China Netcom.

For the first time, foreign companies had directly invested in China's basic telecom operator.

China's basic telecom industry, including fixed-line telephones, mobiles, IP and satellite communications, is at the moment strictly closed to foreign investors.

This situation is expected to gradually change as foreign companies lobby the government to be more open.

March and April may have been the most difficult period for China Telecom as it has started to adopt a new charging standard, which has received many complaints. Its only potential rival, China Railcom, has also expanded its network from the railway industry and started operating.

As China Telecom has started using its new charging standard, which calculates cost by second instead of minute, most city dwellers feel their telephone bills are higher, according to a survey made by China Central Television.

Poor service quality with high charging standards has become the most popular phrase to describe China Telecom.

China Telecom's development faces another dilemma -- to split into small companies or be kept as one strong group.

Although the State Council has decided to reform the telecom industry, especially China Telecom, it is being very cautious about making final decisions on the reform plan of the company.

China Telecom is the largest of the seven basic telecom operators who are China Telecom, China Mobile, China Unicom, China Netcom, China Railcom, China Satellite and Jitong.

It controls over 99 percent of the fixed-line subscribers, which exceeded 160 million by the end of May. Its 170 billion yuan (US$20 million) revenue in 2000 was also 60 percent of the total revenue of operators.

The government is still discussing whether to split it up or keep it as a conglomerate, according to the managing Ministry of Information Industry.

But the company's going public plan has been delayed because of indecision about reform.

China Telecom has selected two investment banks as advisers for its overseas listing before the end of the year. The stocks are also expected to become hot cakes in New York or Hong Kong, supported by the huge subscriber base.

At a time when people are tired of talking about China Telecom's fate, a new government policy is significantly encouraging the performance of the whole industry.

From July, the 1,000 yuan (US$120) installation fee for fixed-line phones and the 500 yuan (US$60) network connection fee for mobile phones became history.

Telecom agencies have become crowded again and new subscribers are 300 percent more than the average pre-July level.

The encouraging policy has disappointed China Railcom, which was scheduled to started nationwide operations later this month, because it missed the best time to attract customers.

Since it made its debut on December 26, 2000, China Railcom has carried people's hopes of breaking China Telecom's monopoly in the fixed-line business. It has no ability to rival the dominant operator's controlling power in the near term, but China Telecom will be more cautious as the newcomer could provide better services and cheaper charges.

Mobile telecom

China's mobile phone subscribers numbered 100 million in March and exceeded 111 million by the end of May. The number is approaching the top mobile phone market -- the US -- and is expected to soon become top of the list.

China Unicom, the second biggest mobile operator after China Mobile, made the biggest news in the first half of the year by deciding to adopt CDMA (code division multiple access) technology. It signed network construction contracts with 10 equipment providers.

Compared with the GSM (global system for mobile communications), which supports China's 111 million mobile phone users, CDMA is said to be more efficient, with lesser radiation and a better capability of upgrading third generation communications from the present second generation.

Unicom's decision encouraged the CDMA industry, especially the equipment vendors, as most of them are suffering losses from the economic downturn in the other half of the globe.

The company will spend 20 billion yuan (US$2.4 billion) this year on network construction and increase investment to 70 billion yuan (US$8.4 billion) within the coming three years, said Unicom.

The CDMA network that covers 300 cities could start operating in October and could support 15 million subscribers.

China Unicom has immediately become the leader among worldwide CDMA operators. It signed contracts with 13 overseas CDMA carriers to link the networks together, which would enable global roaming of their users.

On the GSM side, Unicom also reported rapid growth. Its subscriber number exceeded 30 million in June, almost a quarter of the total number of mobile phone users. Its market share wasn't even 5 percent two years ago.

Facing growing market pressure, the dominant China Mobile has fought back with a trial operation of GPRS (general packet radio service), the so-called 2.5 generation technology, which could help the user link to the Internet.

After a two-month trial, China Mobile will start providing GPRS services in 25 cities in 16 provinces to attract high-end mobile phone users who want to always be online.

The huge mobile terminal market is still a battlefield for foreign brands, who control about 90 percent of the domestic market. On June 1, 17 domestic mobile phone makers joined hands and vowed to grab 50 percent of the domestic market within three to five years.

Their move has been supported by the government as telecom, especially mobile telecom, have become the fastest growing contributor to the country's economy.

Mobile phones have become strong rivals to the traditional fixed-line phones and the number of mobile phone users will soon exceed that of the fixed-line users.

"That could happen as early as this year," forecast Yang Peifang, a senior expert with the China Academy of Telecom Research of the MII.

In the technology side, the TD-SCDMA (time division synchronous code division multiple access), a standard for 3G mobile communications proposed by Datang Telecom, has been accepted by the International Telecom Unicom as one of the three standards for the 3G age.

This is the first time that a telecom standard born in China has become an international standard.

Datang and its partner, the German-based Siemens, invested billions of yuan into the research. TD-SCDMA has successfully made a computer-based first call and field trials will start in October.

Forecast

The telecom industry will be even more interesting in the latter half of the year.

In line with the country's entry to the World Trade Organization, the telecom industry will face much more pressure from foreign telecom operators.

The market will be more open, more foreign capital will pour into the sector in different forms.

Just days ago, Zhang Chunjiang, vice minister of the information industry, said the telecom and cable broadcasting sectors could enter each other's markets on an equal footing.

The broadcasting sector is very likely to become the next basic telecom carrier and one network will emerge before the end of the year.

The power sector and education network are all applying for the next basic telecom license.

China Unicom's CDMA network will start operating in October, which will make its competition with China Mobile fiercer.

In the tough competition among telecom carriers, customers will enjoy better services with lower charges. China will soon become the biggest telecom market and equipment provider in the world.

(China Daily 07/17/2001)