"We have no timetable yet for the establishment of such a fund," a spokesman with the Ministry of Information Industry (MII) told Business Weekly yesterday.

Beijing-based Chinese-language Business Post reported over the weekend MII plans to launch the fund as early as this quarter.

MII's spokesman denied the report.

It is widely believed the fund would be established from a tax imposed on China's phone operators.

China Telecom currently is responsible for subsidizing phone services in China's impoverished areas.

Despite dazzling growth in the number of Chinese phone subscribers in recent years, the penetration rate is still low due to China's massive population.

Latest MII statistics indicate the penetration rate is 33.74 per cent, lagging far behind developed countries.

The growth of telecoms infrastructure investment has also showed signs of slowing down.

Top telecoms watchdog Wu Jichuan has vowed to keep telecoms development balanced between the impoverished western regions and affluent areas.

Establishment of universal service fund fees is one of MII's top priorities, and the ministry will try to launch it "as soon as possible," Wu said.

The launch of such a fund is expected to sweeten China Telecom while stinging other major telecoms carriers - such as China Mobile, Unicom, Netcom and Railcom.

Building phone networks and laying phone lines in impoverished regions is costly, due to the complicated land formations and sparse populations there.

Details of the subsidies are not available. However, they are believed to be worth hundreds of millions of yuan.

China Telecom reportedly has long been pushing for the establishment of such a fund to lighten its burdens.

Other carriers might not be willing to help create such a fund, fearing it would eat into their profits and affect their stocks.

China Mobile, China Telecom and Unicom are listed overseas.

Unicom also went public last year on the domestic stock market.

MII has reportedly been pushing to levy taxes on carriers' profits or earnings.

However, the plan has been stalled due to carriers' opposition, industry insiders said.

Rumours have been swirling that MII will collect fees on telephone numbers to establish the fund.

Analysts predict establishment of universal service fund fees will not be easy.

"The possibility is very small that the fund's launching will be this year," said Zhu Min, an analyst with telecoms consulting firm Analysys Consulting.

"It's hard for MII to balance the interests of all the parties concerned when establishing such a fund," he told Business Weekly.

Rising operators like Unicom and Netcom will seek more government support. They have been in an unfavourable position since the split-up of the former China Telecom, the analyst said.

The regulator will likely continue supporting rising operators to enhance competition, Zhu said.

MII can also collect fees from other services, such as allocation of spectrum resources and voice traffic, he added.

Analysts expect the government will set up a special committee to manage the fund.

MII could give way so the State Informatization Office under the State Council, China's cabinet, would manage the fund, Zhu said.

(Business Weekly February 19, 2003)