China Telecom and China Netcom are likely to stop treading on each other's turf this month.
 
China Telecom and China Netcom, the two fixed-line telephone operators in the country, have reportedly signed a deal under which they will stop treading on each other's turf, beginning this month.

Some media have called it a "gentlemen's agreement" as it could lead to so-called "rational competition". It is, in fact, a shameful and woeful deal.

Since May 17, 2002, when the former fixed-line monopoly China Telecom was formally split geographically into two firms, China Telecom and China Netcom, the much-hyped restructuring has been almost doomed to failure.

After the split, China Telecom operates mainly in the southern part of China, while Netcom operates in the northern region. Regulators had hoped that China Telecom would head north and Netcom would expand to the south, which could spur competition.

But for more than four years things have been going in the opposite direction. Where can you find China Telecom's services if you are living in north China's Beijing? Consumers realistically do not have more than one choice when choosing fixed-line services.

China Telecom and China Netcom are struggling with saturation in fixed-line services at the same time voice goes mobile. And worse, given the rising mobile lifestyle in China, fixed-line carriers are seeing some of their customers switch entirely to cellular operators China Mobile and China Unicom.

The erosion caused by mobile services is serious. Dominant China Mobile controlled 70 to 80 percent of new revenue in the entire telecom industry nationwide last year. As caller-pays mobile charging is introduced, fixed-line carriers are having an even tougher time.

Behind the truce between China Telecom and China Netcom is a rationale that expansion hardly enables an operator to challenge its rival and investment on the rival's turf could see "losses of State-owned assets".

The awful truth is that the reshuffle in 2002 truly broke a national monopoly but created regional monopolies. And when a cease-fire deal is inked, it seems the national monopoly is coming back to life. The only difference is that the new national monopoly is a collaborative act.

Now the best solution to the paradox might be industry deregulation with the awarding of "full-service" licenses to all major operators. These companies can choose what to do and what not to do after the licensing.

(China Daily March 1, 2007)