Amended Regulations Could Open Telecoms Sector

By Fraser Mendel and Shan Liu of Morrison & Foerster.

The State Council of the PRC recently issued amendments to regulations covering the administration of Foreign-invested Telecommunications Enterprises (FITEs)《外商投资电信企业管理规定 (修订)》. While it is perceived that the regulations were amended in response to pressure to open China's telecommunications sector to foreign investment, at this time it is not clear if the amendments will actually have that effect.A key change made by these amendments is reducing the minimum registered capital requirement for foreign investors engaging in basic telecommunications services. Under the PRC, Telecommunications Regulations《中华人民共和国电信条例》 , telecommunication business is divided into basic services and value-added services. Basic services are services providing public network infrastructure, public data transmission and basic voice communication, while value-added services are telecommunication and information services that use public network infrastructure. The amendments only address capital investment requirements for basic services, and do not affect such requirements for value-added services.

    The Regulations for the Administration of Foreign-invested Telecommunications Enterprises (FITE Regulations)《外商投资电信企业管理规定》 were first promulgated on December 11 2001 and went into effect on January 1 2002. The FITE Regulations stipulate that FITEs must be established as Sino-foreign equity joint ventures – wholly foreign-owned FITEs are not permitted. FITEs can undertake either basic or valued-added telecommunications services. Depending on the nature of its operations and the geographic scope of its services, the minimum capitalization for a FITE could vary from Rmb1 million (US$146,300) to Rmb2 billion. The minimum registered capital required for a FITE licensed to provide national or inter-provincial basic services was Rmb2 billion. The minimum registered capital for a FITE to provide services within a province was Rmb200 million.