Thanks to a series of policies and measures taken by the state in the telecom sector, monopoly has been broken and competition introduced, bringing dynamics and vigor to the sector and accelerating the progress of telecommunications. It has been approved that the decisions taken by the CPC Central Committee and State Council on the reform of the telecommunications and information industry have been correct and the transformation of the sector successful with substantial results.

I. Development of Telecommunications in China

Reform and restructuring led to progress, the number of telephone subscribers exceeded 200 m. In the first nine months of this year, a total of 48 million subscribers were added (exceeding the subscriber total prior to 1995), averaging 5.33 million per month. According to statistics, by September 20, this year, the number of telephone subscribers totaled 200m, more than 135m of the wired and over 65m of the wireless (50.7m of China Mobile and 14.3m of China Unicom), marking a new leap forward in the telecom history in China. China has the second largest number of subscribers for both the wired and wireless telephony in the world. It took China 13 years to gain a growth of telephone subscriber base from 2.03m in 1979 to tens of millions in 1992 and 6 years to reach 100m while it took only 2 years to increase from 100m to 200m at the current stage. Such a significant result has laid a solid foundation for the greater development of the whole sector in the new century.

The national public communications network has improved its comprehensive capability leading to higher teledensity and more consumption. Now, China ranks the 2nd in the world in terms of both the capacity of fixed telephony network and the size of the mobile network. By September, the national teledensity hit 17.7%. In the urban areas, penetration of the fixed telephony reached 38% and that of the cellular telephony rose to 5.1%. Based on the public network, departments of finance, customs, taxation, trade and others have built 108 national computing systems. On-line projects for the government, businesses and households have been progressing considerably. China has established direct circuits with 71 countries and regions and made available international roaming with 108 mobile networks in 59 countries and regions. The telecom sector is increasing its contribution to the state by paying an amount of RMB10.29 billion operational and income tax from January to August this year. The progress of telecommunications and information industry is increasingly promotive to the enlargement of social demand, improvement of the living standard and development of national informatization and economy.

Although progress has been remarkable, telecommunications in China is still lagging behind that of the developed countries on general terms. It is imperative to deepen the reform and speed up progress in a bid to deal with the problems arising in the process of development and the mechanism which is no longer appropriate for the socialist market-oriented economy.

II. Reform and restructuring of the telecom sector

Based on the requirement of the socialist market-oriented economy and unique features of the sector, telecom sector in China carried out a series of strategic reform in the past two years, progressively leading to the separation of government function from that of business, separated operation between post and telecommunications and the restructuring of the telecom sector. The reform has involved 1.2m employees, 60,000 points of operation, and RMB600 billion assets adjustment and spin-off. The reform has been unprecedented in terms of scope, intensity and difficulties it embodies. The pace of the reform is faster in comparison to other countries in the world. We have taken only 2 years to accomplish the whole process of reform and restructuring taking 7 to 8 years for many developed countries.

To promote communications reform and restructuring based on specific conditions. A series of major decisions made by the State on the direction of the reform have ensured the reform going forward along the right track. Basing itself on these decisions, the Ministry of Information Industry (MII) has been, in the process of the reform, leveraging foreign experience in the light of the specific Chinese conditions and giving full consideration to the current development status of communications in China, which is quite different from that of the developed countries. Also, in working out the plans for reform and their implementation measures, MII has proceeded from the domestic legal and market environments as well as the communications network standard with stresses on meeting the forth-coming international competition. All this is aimed at relentless eradication of monopoly and fostering of competition on the one hand, and the maintenance of the overall strength of the national communications network and the stability of the sector on the other. The communications sectoral reform and restructuring in China has been progressing in a planned and step-by-step manner. With reform basically completed in various aspects, monopoly in communications in China has been abolished and fair competition has been initially introduced into the market.

Communications regulatory regime is being set up and improved by the government. As required by the State Council, MII has given up all its business functions either to the relevant enterprises or other departments, achieving complete separation of government functions from those of the business. In the last 2 years, MII has carried out a lot of work in terms of overall planning, legal framework development, technical standards, supervision of service quality as well as management of information security, thereby enhancing macro control and market regulation. Recently, the State Council has approved the Draft Telecommunications Regulations of the People’s Republic of China, which will be promulgated and enacted soon. This will be China’s first administrative ordinance in the field of telecommunications. In addition, the State Council has approved the Management Methods for Internet Content and Services (Draft). These regulations and methods will promote and guarantee the fast and healthy development of the telecommunications industry in China. Also, a series of policies governing market entry, inter-connection and inter-operation, settlement among different carriers and market supervision have been introduced by MII, which play a positive role in promoting market competition and optimization of resources distribution and maintenance of the customers’ interest. By now, the provincial communications administrations have all been restructured in line with the principle of separating government functions from those of the enterprise, and from now on, as the government agencies, they will regulate the communications sector at their localities in a fair, open and equitable manner so as to create very sound external environment for communications development.

Competition in the telecommunications market is basically in place. In accordance with the scheme mapped out by the State Council, the former China Telecom has been broken up into four niche companies respectively operating fixed, mobile, satellite and paging communications services. At the same time, China Unicom was restructured and China Network Communications Corporation (CNC) was set up with the approval from the State. MII also intensified its support to China Unicom. To be more specific, Guoxin Paging Company (having an asset of 12.6 billion RMB yuan) was spun off from China Telecom and incorporated into China Unicom. In addition, MII sent a team of its own professionals and management personnel to work in Unicom. As a result, competition in the telecommunications and information service market in China has been basically realized among major carriers such as China Telecom, China Unicom, China Mobile, ChinaSat, CNC and Jitong as well as a number of small and medium-sized companies. In the basic telecom service area, including international, domestic long-distance, local and mobile communications services, there are now at least two operators competing with each other, which has led to marked changes of market shares owned by the major carriers. By the end of last June, China Telecom, China Mobile and China Unicom respectively had 68.1%, 25.8% and 6% of the total telephone subscribers in the country. With regard to long-distance transmission, China Telecom and China Unicom held 86.6% and 13.4% respectively of the country’s toll optical cable facilities . And while China Mobile acquired 81.2% of the cell phone users across the country, China Unicom managed to get 18.8%. As for the emerging IP telephony market, the shares of China Telecom, China Unicom and Jitong in terms of hours of conversation were 54.4%, 31.2% and 12.3% respectively. As a next step, MII will render continued support to major telecom businesses in their accelerated growth and meeting the international competition with sharpened competitiveness. In the mean time, intense support will be given to emerging telecom enterprises so that they will grow to be as strong. When conditions allow, operators of private communications networks, after being incorporated, will also have the opportunity to enter the telecom market with the purpose that effective competition will be achieved at the earliest possible date.

Reform and restructuring has facilitated the system transformation in the business. The changes in the market paradigm, adjustments in tariffs and China’s imminent entry into WTO have all been stimulating factors for the various telecom businesses to transform their mind-sets and operating mechanisms. While accelerating the establishment of modern corporate system, they have adopted measures on all fronts to improve management, reduce cost, raise efficiency and better their services. Turning pressure into motivation, China Telecom has become more aggressive in the market with its completely new and multi-polar ideas and strategies on operation. China mobile, too, has been vigorously developing new services based on their concept of “communications with customers from the heart” and doing well in improving the service quality. China Telecom is deepening enterprise reform by intensifying efforts in innovation in technology, operating mechanisms and management, acquiring new business philosophy and persistently tackling both the apparent and deep-rooted issues, in an effort to resolve the in-depth problems besetting telecom services. With the great support from the State, China Unicom launched a very successful IPO on the New York and Hong Kong Stock Exchanges, raising a total of 6.4 billion US dollars.

III. Supervision of the Communication Service Performance

Major problems existing in the present communication services

The communication sector has attached great importance to the performance of services long since. Many years of efforts have contributed to upgrade the overall performance of the communication services, with the difficulties in individual phone line set-up, service provisioning and payment of the monthly bill greatly eased up. At present, the average waiting time for the phone line set-up is within half a month nationwide, and the timely fault recovery rate and successful mobile call setup rate have improved markedly. The overall performance of the communication industry, however, is still short of the expectations of the wide-ranging users. The tariff is one of the most controversial issues raised in recent years. A many of large clients and ISPs are complaining about the problems in the leased line service. Some telecom enterprises have malpractice in their provision of services, and irresponsible employees who are lack of market awareness, service awareness and costumer awareness. There are cases of ill-treatment of the customer, which are so serious as to infringe upon the legal rights of the consumer.

Establishing the mechanism of “Regulation by the Government, Self-discipline by the Enterprise and Supervision by the Customer”, and furthering the effort in the supervision of the communication services

Since its establishment, the Ministry of Information Industry has made a great amount of efforts to improve the performance of service. It has published the Standards on Telecommunication Service Performance, and set up the National Telecom User Committee and the Telecom Costumer Complaint Handling Center, which played an active role in improving the service performance. The Ministry of Information Industry is decided to take the supervision of the communication service performance as its top priority, and to make great commitments to implement the standards on the service performance. A series of regulations and rules are being developed at present, including the Provisional Rules on the Supervision and Management of the Telecom Service Performance, Provisional Rules on the Telecom Costumer Complaint Handling and the Evaluation Mechanism on the Costumer’s Rating of the Telecom Service Performance. The Reporting Mechanism of Telecom Service Performance will be formulated, requiring all the telecom operators to report to the Governmental regulator on their performance of service. Besides, the Publication Mechanism of the Telecom Service Performance will be formulated to make known to the public, on a regular or non-regular basis, the service performance of and the costumer’s evaluation on the telecom operators, with the purpose of enhancing the supervision by the public opinions and the society.

Further expanding the dimensions of the pubic supervision

Both the communication regulator and operator should further improve the mechanism of the public supervision, expand the channels of the public supervision, and give full play to the role of the costumer’s supervision and the public opinion. The Ministry of Information Industry invites with great sincerity the costumer and every circle of the society to supervise and criticize any problem in the performance of the communication services; supports the costumer to protect his own legal rights by means of the law; commits itself to expose and punish anyone in notorious cases of malpractice or infringement on the costumer’s rights.

Ministry of Information Industry

September 25, 2000