Major Developments and Issues of China Telecommunication - Term Paper Example

China telecommunication-Major developments and issues Introduction China telecommunications was initially governed by the posts and telecommunications division. The year 1994 saw a major shift in the revolution of communication services in china with telecommunications separate entity on a whole to exclusively look into the huge telecommunication network. The government upon the significance and volume of the subscribers named separate service based and region based services to reach the end customer. The strong state holds organizations were build into a strong business network competitive with private players. The fierce competition between the companies has opened up new challenges and avenues which are to be explored to sustain in the industry. The foreign mobile companies with more technology and business strategies provided new challenges for the state owned companies to withstand in the industry. "No money to be made in a market with more than 1.3 billion people and a 7-8% average 1 GDP growth rate? Doesnt that sound oxymoronic? Even with regulated competition in the Chinese telecom market, there are abundant business opportunities," said Michael Cai1 Chapter 1: China is the largest populated country providing unlimited opportunities in major sectors like telecomm, Aviation, IT and software solutions. China telecommunications has been separated from affiliation from Ministry of post and telecommunications in 1994. China telecomm was the only player used to take care of various others applications for entire china. Foreign players are not allowed to venture into china as a part of the constitutional regulations existing at that point of time. Major changes in Telecom sector MPT with its arm China telecom has made a very bad progress throughout its operations due to factors like The increase of private players absorbing the market of the state owned organizations Loosing consumers confidence on the services Political pressures and their ill effects The monopoly and the negative consumer perceptions2 forced Chinese government to look for a change that can decentralize and elevate the performance of telecomm industry. China has established one2 more organization called China Unicom. China Unicom a new player to start on its own performance failed to impress. The China telecom has shown its influence same as before as it was an arm of MPT (ministry of posts and telecom). China Unicom has been open to involvement by foreign parties. China telecom a serious contender used to confine itself to the native associations. China telecom used to play against China Unicom where in telecom used to benefit from the deals. China Unicom have been met with resistance by China Telecom, which restricted interconnection with the national trunk network and, where access is granted, on terms that favored China Telecom at the expense of China Unicom and its foreign investors. By controlling the network in healthy manner, the MPT neglected the development of China Unicom5. The cold war between Unicom and telecom restricted foreign investors from making any real inroads in Chinas telecom sector. Reforms were initiated for major developments to serve he consumers more effectively. Chapter-2 Reforming telecom sector China huge telecommunication business was highly complex to organize. Telecom reforms were described by a minister as an "horizontal cut", that is, to separate enterprise from government administration. The second step is "vertical" in the way competition is to be encouraged among telecom enterprises. Policy support will be given to new enterprises; monopoly and unfair competition by old enterprises will be prevented. The third step is to be introduced a mechanism of competition by Chinese enterprises with f3oreign counterparts in China3 The growing operational difficulties made Chinese government to restructure the China telecom the administrative functions were merged into the new Ministry of Information Industry (MII) and the operational arm, China Telecom, became a telecom carrier independent of the MII. The ministry of information industry had been created by a merger of the MPT and the Ministry of Electronics Industry (MEI) was established to create a new face for the telecom industry with the powers to organize elaborating regulations, allocating resources, granting licenses, supervising the competition, promoting research and development. The stiff competition between unicom and telecom has been kept regulated by diversifying the services into three main areas the China telecom for fixed line operations, China mobile and China satelitte for wireless operations. Chinas telecom industry has changed from a highly regulated market dominated by China Telecom into a market featuring much organised competitive environment before 2000. There are six major telecom carriers in China, China Mobile, China Telecom, China Netcom, China Unicom, China Railcom, and China Satcom, ranked in the order of market share4. The transition evolved from limited competition to effective competition. The new change has resulted in less government influence, more market-oriented decisions, and perhaps the introduction of 4 new carriers. Organising of this many number of firms became difficult because the six major telecom carriers are majority-owned by the Chinese government and improper deregulation may damage the benefits of state ownership and allow unacceptable freedom to the private and external players. Chinas telecom market is only at the initial stage to revive the competitive system in 2000. There was a major change in demand and was absorbed a decrease in the volume of growth. The major conclusion was that the market has attained saturation which sent alarms for the domestic and foreign players’ altogether. To address this issue MII has called for lifting up the sanctions on covering 34 items, of telecommunication services, whose prices are subjected to regulate the market pr5ice5. These published items all belong to the valued-added services, a category for which suppliers add a value to the customers information. These valued added services differed from company to company to differentiate themselves and stay ahead in competition. The value added services were given preference where the foreign investor can claim ownership up to 30%. This relaxation were gradually applied to various others cities in a phased manner for different public main value-added services within two years of accession, mobile services within five years, and domestic fixed service within six years. The keen internal competition among telecom companies, the government loosened the market supervision and crowded the market with products of various firms after2000. These factors have resulted6 in severe cuts to the profitability margins. The companies bought into cheap products which gave a stiff competition for the state owned organizations products6. Chapter-3 Changing situations 2000-2006 In 1990s’ market prices were controlled by the big companies there was negligible Influence if there is a price dip or rise. But now as there are many small firms with moderate revenue these small companies will suffer huge looses if the price fluctuation continues. To help the competitive setup and support new enterprises in this special transition period, the government has the responsibility to control the price, especially the price set by major well established enterprises. This may decrease the revenue share of well established companies however it will give scope to small companies to survive in near future. Although the number of consumers in China’s telecom industry ranks very high globally, the overall profitability margin is still low. The foreign mobile companies’ entry has changed the competitive environments with their distinct products and high technology features. Another major issue was the complex accounting system7 resulted from cross subsidies to various divisions and owing that pressure back to the organization. By 2003 the average profit ratio of the state owned companies decreased as 7 the companies try to lower prices, the average profit margin has decreased. There was a gradual increase in the private ratio of equity. The below graph depicts that the peak demand was no where in comparable to demand in the other years as it shows saturation in required some kind of innovation in the products of particular service. The competition was so ugly that the China Unicom has suffered huge loss of profit ratio where as the other mobile providers were at their peak in profits (Epoch times, 2005). The government failed in carefully planning the competitive environment and thus resulted in a unequal competition which may sink the China telecom industry. The gap between the performance was so wide that it was thought impossible to address the industry issue. There were many companies and the market was forced to share among them selves and decreased the overall profitability of the industry thou the business has increased. According to statistics from the Ministry of the Information Industry, in 2002, the trade done by telecom businesses in China increased by 29 percent but the increase in revenue was only 15 percent. In 2003, business increased by 32 percent, the revenues dropped to 14 percent8. The year 2004 has seen a steady growth in the revenues for all standard telecom players. China firms concentrated more on creating a solid platform to launch more sophisticated features to entice and retain more customers in a market where it was about to reach maturity at a faster pace. The restructuring has seen huge investments diverting and 8 marginal setbacks which were necessary to hold to achieve the future market share and the firms were successful in organizing the things in a better way. The mobile boom has enticed many foreign players who are heavily battling for their existence with the local players. The foreign companies are striving hard to enroll customers where as the governments is supporting the local players. The local Huawei Technologies and ZTE are showcasing best performance to stay ahead in the competition with the help of government supportive measures. Chapter-4 conclusion The telecom industry has come from an associated organization to an entirely different and unique service provider. The main hindrance with the internal competition between the state-owned big players and the sectorial distribution of work was major challenges faced by PRC. The able administration with a well organized telecom is what was in demand. The state owned organizations bearing with the internal competition were challenged by the foreign entities which entered with more robust technology was still a major concern to be addressed. The governments loosening the knots for more unconfined business for the existing competitors elevated more issues to concentrate. As the market reached a saturation point for the prime products of telecom industry the demand for distinct services with more unique features is very essential. The company which takes the value added services at a faster rate will gain from the market. Can the companies both state owned and private operators attain this business is what we can get after the performance. Reference: 1. Yuanzhe cai, Chinese telecom market overview and analysis, March’03, Park Associates,http://www.parksassociates.com/research/reports/tocs/chinese_telecom.htm 2. Morrison and Forrester LLP, Chinas Telecommunications Industry: The New Ministry of Information Industry (MII) and Foreign Investment Opportunities available at http://library.findlaw.com/1998/Apr/1/129982.html 3. China telecom reform enter third stage, 10-2000 update at 16:47, People’s daily, available at http://english.peopledaily.com.cn/200010/13/eng20001013_52549.html 4. Parks Associates, Transitioning Towards a Stable Growth Stage, the Chinese Telecom Market Still Promises Tremendous Opportunities available at http://www.digital-lifestyles.com/cowp4.cfm?code=1180 5. Isabelle Paradis, Miranda yi, May 2006, China-the world’s largest telecom market and more to come available at http://www.hottelecoms.com/cp-article-may2006.htm 6. Market research-China’s telecommunications market available at http://www.buyusainfo.net/docs/x_8130085.pdf 7. Vice Minister of Information Explains the Accounting Policy of China Telecom, China’s foreign trade 2000 available at http://www.cbw.com/cft/issue281/p19-20.html 8. China telecom is facing difficulties, June2005, The Epoch, The Association for Asian research, available at http://www.asianresearch.org/articles/2620.html Read More