While setting principles to ensure the healthy growth of the crucial telecom sector, the draft reportedly keeps a tight rein on the number of new operators entering the market, which risks slowing down the pace of market reform.

The submission will represent the first step towards possible passage of a highly-anticipated law. It would have to go through several departments before being submitted to the National People's Congress for possible approval.

The first step, however, is cause for optimism.

Governing the technically volatile sector, the new draft is yet to encompass all the disputed issues. Even some stipulations of the draft are themselves controversial.

But we cannot wait any longer to see an omnipotent regulation that will satisfy all concerned parties. It is better to resort to revision of the law in the future to get it in tune with changes brought by the sector's constant technological evolution. After all, 24 years have passed since the country started to prepare for such a law.

For a long time the knot of the issue was how to improve the complicated relationships between regulators and upper authorities, regulators and enterprises, consumers and enterprises, and, finally, between the enterprises themselves.

The previous Telecommunications Regulation did not solve this problem.

Promulgated in 2000, the simple administrative regulation no longer meets the needs of the changing situation. The splitting of the former national fixed-line conglomerate China Telecom and the rise of China Tietong, for example, fundamentally reshaped the industrial landscape.

By the end of May the combined number of fixed-line and mobile phone subscribers in China topped 590 million - the world's largest subscriber group.

All this demands a higher level law to better govern the industry.

On the other hand, the fact that the drafting of the law has taken so many years indicates how difficult the task has become.

The thorniest issues are market entry, property rights and interoperatability. They have been the headache of regulators in dealing with previous market disputes and remain the main points of contention in the process of drafting the new telecom law.

Market entry is at the top of the list. Without more operators entering the market to make effective competition possible the market mechanism will not play a leading role in pricing telecom services and the monopoly will continue to prevail.

China currently has only six operators providing basic telecom services, and they are generally single-service providers. Effective competition is yet to make an appearance.

Take mobile service as an example. It is hard to call the market scenario a duopoly, although China Unicom was established in 1994 to compete against the then lone market giant, China Mobile. Today China Unicom's market share in terms of revenues is only around 15 per cent.

The government formerly strictly controlled the number of competitors in the market's initial development stage in order to create a sound environment for the growth of the previously weak State-owned operators. But as the market develops and those operators mature, competition should be encouraged to ensure the market's long-term development.

Thanks to monopoly, China's mobile service fare in the past decade has never been officially adjusted although the subscriber base keeps expanding.

This is unreasonable.

Last year China Mobile reaped 35.6 billion yuan (US$4.29 billion) in net profit, raising its net profit rate to 22 per cent - an exorbitant figure even compared to other domestic monopolistic sectors.

Although some local branches of the mobile operators often broke the limit in the past years, none of them have managed to get the nod from their superiors. This just shows the betrayal of the regulating authorities against the market.

More competitors might help break the pricing iceberg.

Unfortunately, the draft law is reported to maintain strict numerical control over operators of telecom businesses, but the regulators face a dilemma regarding this issue.

If they refuse to open up the sector they may be accused by the market of blocking competition. But if they allow more competition, the unpredictable consequences of competition could bog them down.

Currently the State holds a majority share in all the telecom operators. In the three listed operators - China Mobile, China Unicom and China Telecom - more than 70 per cent of the shares are non-private.

Once more competitors enter the market and competition intensifies, it will be possible for State operators to incur losses - the political fallout of which would likely be unbearable for the Ministry of Information Industry, the drafter of the telecom law.

The key to this problem remains the task facing many State-owned enterprises: Improving their corporate structure and sharpening their competitive edge.

Without diversifying the property rights structure of telecom operators, regulators will not be encouraged to open up the sector.

Progress in this regard will determine the development track of not only the State operators, but also the reform of the industry as a whole.

The draft law makes much headway in stipulating principles to solve the industrial problems of the telecom sector.

It is expected to strengthen regulations in the telecom market, deal with provisions for universal telecom services, and aid the convergence of telecom, broadcasting and Internet networks.

Above all, principles dealing with the issue of interoperatability have been established. Experts are now looking at the cost of interconnection between different networks.

This is expected to solve the vicious competition among operators blocking connections from other networks.

Despite all this, the capacity of the new law to encourage competition remains the core issue.

It will be the gauge by which to measure the real effectiveness of the law.

(China Daily July 29, 2004)