Telecom Legislation: The Year Ahead

Arguably, if it falls under the latter category, it is open to foreign investment in accordance with the WTO phase-in period for value-added services. However, the opinion seems to be divided. Some MII officials have said that the more complete Classification list refers to services permitted for domestic operators, and foreign providers are confined to the more limited services outlined in the WTO commitments. This has certainly put a damper on foreign investment in the value-added services sector and has also encouraged some creative structuring of investments to circumvent such barriers on foreign participation.

New Classification

However, some relief may be in sight. According to Su Jinsheng, director of the Telecommunications Administration Bureau at the MII, 2003 will see a clarification of the permitted areas for foreign investment in value-added telecom services in the form of a revised Classification.

It is anticipated that the new Classification will provide a restatement of "value-added" and "basic" level services. The distinction is critical, since the classification determines which services foreign investors can participate in, and to what level. For example, under China's WTO commitments, permitted foreign investment in value-added services will rise from 49% to 50% by December 11 2003.

Foreign investment in fixed-line services will be allowed to increase to 25% by 2004, and to 49% by 2007, although for mobile voice and data services, foreign investment of up to 49% is permitted by December 11 2004.

Basic Services Strictly Controlled

However, foreign investment in mobile and fixed-line services will still be subject to increased capital requirements, and continue to face restrictions on geographic access, which still apply to all telecom investments. Overall, due to national security and foreign ownership concerns, access to basic level services will always be strictly controlled, and will only gradually open to foreign investment.

Despite the promulgation of the Administration of Foreign-invested Telecommunications Enterprises Regulations in December 2001, recent reports suggest that so far, the Chinese government has received no applications for the establishment of basic telecom services by a foreign-invested joint venture, and only a "very few" applications for value-added services. According to a number of foreign telecom providers, the licensing procedures for basic and value-added telecom services are overly complex, and the approval process for a value-added services permit is inordinately lengthy.

New Telecom Law

However, many observers are pinning their hopes on the enactment of a major telecom law in 2003, which will replace, amend or consolidate the patchwork of existing regulations and circulars, some of which are inherently contradictory.

The enactment of a new telecom law stretches back to the late 1980s, and reportedly, the drafting process was held up by preparations for China's WTO accession, and then further delayed by plans to break-up China Telecom's monopoly in 2002. International investors are no doubt hoping that 2003 will see China finally go through with the promulgation of a new law.

Interconnection

When interviewed in an MII newspaper report in January, Su Jinsheng stated that in addition to the new law there will also be other regulations promulgated dealing with such issues as interconnection between competing networks, and guidelines for resolving disputes.

Network interconnectivity has become a more pressing issue since China Telecom lost its monopoly resulting in two fixed-line providers, China Telecom in the south, and China Netcom Group in the north. There is still relatively little head-to-head competition between these two fixed-line companies.

New Regulator

Interconnectivity between competing networks will be subject to the new regulation, and although a strengthened commercial dispute resolution process is in the pipeline, network interconnection issues are unlikely to disappear overnight. Current provisions in various regulations appear to lack teeth, and the MII, as independent regulator must be seen to be doing its duty in fostering a fair and competitive market. This will indeed be a tough task for the MII and its new boss Wang Xudong, the telecom outsider who will be charged with managing the MII in the new convergence era.

We certainly live in interesting times, and 2003 promises to be one of those interesting years.

By Nancy Leigh,

Baker & McKenzie