China’s latest telecom reform looks on paper to be its biggest and most significant for many years.
Instead of merely licensing MVNOs, or splitting off towers, the Ministry for Industry & IT (MIIT) has actually issued a new infrastructure licence – the first ever awarded to an organization not controlled by the ministry.
But the new player is China Broadcast TV Network Co (CBN), a two-year-old outfit owned by MIIT’s perennial rival, the cable TV, press and media ministry. In reality it is the latest step in a long and incremental process and pits a small, under-funded operator against industry heavyweights.
In China the process is known revealingly as 'three-network integration,' the third ‘network’ being the internet, which has been under discussion for at least a decade. The telecoms and cable ministries have long rejected the other’s entry into their turf, even though it has occurred profitably in dozens of other markets.
Back in January 2010, the State Council announced it would “accelerate” this convergence and gave the go-ahead for a dozen cable broadband pilots around the country. CBN was formally established in May 2014 with paid-in capital of just 4.5 billion yuan ($692 million at current rates).
It has since collected nine licences from the MIIT, including permits for internet data transmission, data centre operation and value added telecom services. The ninth, a ‘basic telecom service operating permit,’ issued last week, allows it to provide broadband nationwide.
The company’s own data shows it has a mountain to climb. It has just 20 million cable broadband users, accounting for less than 10% of the market. At the end of 2015 fixed-line broadband users numbered 213 million, of which China Telecom had 50% and China Unicom 30%, according to MIIT figures.
An even bigger issue is its slender financial resources. The cable ministry had unsuccessfully sought $32 billion from the central government and banks. Not an unreasonable amount if it were going to go head to head against the telcos, but this was turned down.
Another daunting problem is that CBN is still cobbling together a single national network out of dozens of small provincial networks using old technologies.
At its first anniversary event last May year, CBN officials predicted the company would complete the integration of six to eight provincial networks in the first year, and achieve a single nationwide network by 2020. According to the China Times they in fact completed just two last year.
Industry website C114 offered a more positive note, suggesting CBN was unlikely to go head to head with the telcos in urban areas and instead would focus on rural customers. The cable operator has already provided basic connection to most village communities.
“Only from this perspective, CBN would not lose at the starting line. The rural market seems promising,” the commentary says.
It is promising from the government perspective as well. The presence of the cable player in under-served rural areas will inevitably prompt the attentions of the two big players, creating price and service competition in districts that need it.
But it will be tough. The MIIT is China’s regulator as well as policy-maker, China has no telecom law and the anti-trust law is almost never used against state-owned enterprises. It will be some time, if ever, before the new licensee can contribute meaningfully to China's broadband network inventory.
And in the greater scheme of things this is almost a sideshow. The real action is in China’s mobile market, where three operators serve around 1.3 billion customers and China Mobile rules the roost. The MVNOs have taken just a fraction of the market and the MIIT mandarins have yet to come up with any effective measures to curb China Mobile’s dominance.