Information Technology Reference
In-Depth Information
cally, the regulation prescribes that China owns
no less than 51% of the stakes.
Access networks are categorised as value-
added telecommunications services. Any Chinese
corporation can be licensed as an ISP by the
Ministry of Industry and Information Technology
(MIIT) as long as it meets legal, technological and
financial requirements stipulated in the Telecom-
munications Regulation of the People's Republic
of China. Importantly, interconnection rules are
laid down in the telecommunications regulation,
which requires that telecommunications networks
shall be interconnected on the basic principles of
technological feasibility, economical reasonable-
ness, fairness and justice, and reciprocal coopera-
tion. A major telecommunications carrier should
not refuse the request of other telecommunica-
tions carriers and dedicated network operators
for interconnection. In the case where a network
interconnection agreement is not arrived at through
negotiation, MIIT is responsible for coordination.
The regulation requires that all ISPs have to
gain global Internet access through one of the Inter-
connecting Networks and those network providers
must lease their international links from China
Telecom, China Unicom or China Mobile. These
regulatory arrangements have the consequence
of limiting competition at broadband backbone
networks. China Telecom and China Unicom
together have over 95% of China's international
outlet bandwidth and enjoy their huge market
power with around over 90% market share. As a
result, the cost of an ISP access to the backbone
networks is relatively expensive in China. The
connectivity cost is a major component of the costs
that ISPs pass along to subscribers. Higher prices
from the carriers directly translate into higher
price for users, which in turn retards broadband
adoption. Jew and Nicholls (2000) argued that
the level of pricing and product innovation that is
available to consumers would be impeded without
competition at backbone layer.
In addition to fair regulation, an independent
regulator is considered by the international
telecom community to be one of the three fun-
damental requirements for the introduction of a
liberalised and competitive telecommunications
environment (Lovelock, 1999). According to the
telecommunications regulation, MIIT is entitled
to oversee and control the telecommunications
industry of China. As a government department,
MIIT is responsible for strategy planning, policy-
making and overall regulation of the information
industry. This status makes it difficult for MIIT to
be an independent regulator without any political
obligation and political intervention. Therefore
China does not have an independent regulatory
agency in a real sense.
As Kennard (1999) points out, establishing an
independent regulatory authority is a crucial factor
in the success of any country's effort to introduce
competition and to liberalize the telecommunica-
tions sector. OECD experience has shown that
more effective regulation can result where there
is a certain degree of structural independence al-
lowing the regulator to implement its regulatory
mandate without any political intervention. In the
case of China, the government is essentially the
only real basic telecommunications service pro-
vider as all telecom carriers are state owned. 'It is
for this reason that WTO argues that an indepen-
dent regulatory agency is particularly important
where the government retains any ownership
and/or control of domestic telecommunications
carriers' (Lovelock, 1999). This less competitive
telecommunication environment also discourages
private investment in the broadband industry. Al-
though foreign investment in telecommunications
service enterprises has become legally possible
since 2001, very few foreign owned broadband
service providers are operating in China. There
is definitely a need to establish an independent
regulator in order to ensure a fair and transparent
competitive environment in China.
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