Reform Process and Development Situation of China Telecom Industry

Asia Telecom Industry Forum

Reform Process and Development Reform Process and Development Situation of China Telecom IndustrySituation of China Telecom Industry

Prof. Hao WeiminVice President & Secretary General

China Association of Communication Enterprises

Vice Chairman, President

China Orient Telecomm Satellite Company Ltd.Nov. 30, 2002

Hong Kong


OutlineOutlineSection 1. Reform process * Objective and Measures * Industry Reorganization * Open market Section 2. Development situation (1) * Rapid increase of Market Volume

( number of users ) * Market competition plays its role * Service quality improved * Service price reduced


Section 2. Development Situation （ 2 ） * Revenue increase recovery

* Expanding of customers scale

* The situation of increase of customers in the

first half year

* Competition pattern changed

* Market share of operators

Outline


1.1. Target and Measures1.1. Target and Measures

Objective

* Separating government and enterprises ， ensuring the independent administrative supervision by government departments;

* Breaking monopoly, improve the engendered issue of low efficiency ;

* Protect competition, promote telecommunication enterprise to improve service, cut down price level and strengthen competition capacity ；

* Adapt to the development of market economy, establish modern enterprise system of clear legal rights and obligations


1.1. Target and Measures1.1. Target and Measures

Measures * Introduce competition, reorganize China Telecom and

other telecommunication enterprises; * Support China Unicom and other newly risen

enterprises; * Open market ： allow CNC and CRC etc. to enter

telecom operation market; * Fulfill the promise of entering WTO, allow foreign

investors to operate telecom business in China; * Refine market competition structure and promote the

forming of the effective competition..


1.2.1.2.New Pattern in China Telecom New Pattern in China Telecom MarketMarket

DirectorateDirectorateGeneralGeneralininChina PostChina Postbefore before 1999.51999.5

1999.51999.5China TelecomChina Telecom

1999.51999.5China MobileChina Mobile

2001.122001.12China SatcomChina SatcomIn 2000In 2000

CRCCRC

1994.71994.7China UnicomChina Unicom

In 1999 Guoxin In 1999 Guoxin Paging was put Paging was put

under China under China UnicomUnicom 2002.52002.5

CNCCNC

2002.5 China 2002.5 China Telecom Group Telecom Group (Southern 21 (Southern 21 provinces)provinces)

In 2002 CNC and In 2002 CNC and Jitong merged Jitong merged

with Northern 10 with Northern 10 provincesprovinces

OtherOthersmallsmalland and

medium-medium-sizedsizedenter-enter-prisesprises

over over 40004000PagiPaging;ng;

1300 1300 ISP:ISP:15001500ICP:ICP:14001400

DirectorateDirectorateGeneral ofGeneral ofTelecomTelecomininMPT MPT beforebefore1995.4 1995.4


1.3. Industry Reorganization1.3. Industry Reorganization * Government restructuring state-owned properties;

* Introduce new telecom operators such as CNC, CRC;

* Promote the rapid development of China Unicom,

CNC and other newly risen enterprises;

* Telecom charges tend to fall due to price adjustment

by government and market competition;

* Meanwhile, thousands of value-added services

providers entered into telecom market to develop

their business.


1.4. Main features in China Telecom 1.4. Main features in China Telecom Market at present:Market at present:

* At the beginning stage of market competition;* Competition pattern formed of many operators

participating in the market;* Legal system gradually improved;* Plural investors;* Very fast development speed;* Relatively quick improvement of service quality;* Advanced technology;* Vast market potential and bright future


1.5.China Telecom Industry 1.5.China Telecom Industry is in a Period of Transitionis in a Period of Transition

PastPast ：：monopoly monopoly

periodperiod

PresentPresent(transitional(transitionalperiodperiod ）：）：limitedlimitedcompetitioncompetition

FutureFuture ：：period of period of effectiveeffective

competitioncompetition


1.6.Operators are changing1.6.Operators are changing

BeforeBeforereform:reform:

solesoleoperatoroperator

AfterAfterreform:reform:manymany

operatorsoperators

Problems in the new competing environment:Problems in the new competing environment:1. Disputes on network connection is apparent;1. Disputes on network connection is apparent;2. Price war in telecom service has become 2. Price war in telecom service has become violentviolent ；；3. Proper allocation of resources is the condition 3. Proper allocation of resources is the condition of fair competition.;of fair competition.;4. Enterprises tend to focus on improving services;4. Enterprises tend to focus on improving services;5. Overall coverage of service is facing new 5. Overall coverage of service is facing new difficultiesdifficulties


1.7. Plural Investments1.7. Plural Investments

China telecom industryChina telecom industry

foreign foreign investmentinvestment

State-owned State-owned investmentinvestment

private private investmentinvestment


1.8. Achievements and 1.8. Achievements and Defects of the Reform Defects of the Reform

Achievements:

* Market competition pattern

formed;

* Development trends maintained as rapid, stable and sustainable;

* Public satisfaction level improved on telecom service;

* Telecom industry plays prominent role in national economy and social informationalization


1.8. Achievements and 1.8. Achievements and Defects of the Reform Defects of the Reform

Problem to be settled: * Unfair and ill-purposed competition occurred

sometimes; * Asymmetric rights and responsibilities of the

supervision bodies, resulting in their lack of capability in legally enforced administration;

* Enterprises’ comprehensive competitiveness need improvement;

* Overall coverage service mechanism wait to be established.


2.1. Increasing Market Scale2.1. Increasing Market Scale

00

50005000

1000010000

1500015000

2000020000

4070407054945494

7031703184728472

1084010840

1440014400

1793317933

*fixed telephone users*fixed telephone users

19951995 19961996 19971997 19981998 19991999 20002000 20012001

1990019900

2002`6


2.2. 2.2. Expanding Users GroupExpanding Users Group

00

55

1010

1515

2020

2525

3030

80`80` 85`85` 90`90` 95`95` 00`00` 02`302`3

Popularization Popularization rate of telephonerate of telephone

Popularization Popularization rate of main linesrate of main lines

02`6

Development of telephone

（（ setset/100 people ））

（ line/100 people ））


2.3. Increasing Customers 2.3. Increasing Customers Increasing of the number of mobile phone Increasing of the number of mobile phone usersusers

(ten thousand )(ten thousand )

0020020000

40040000

60060000

80080000

1001000000

1201200000

1400140000

1601600000

1800018000

19951995 19961996 19971997 19981998 19991999 20002000 20012001 2002.62002.6


2.4. Increasing Customers2.4. Increasing CustomersIncreasing of the number of Internet usersIncreasing of the number of Internet users （（ ten ten thousandthousand ））

00500500

10001000

15001500

20002000

25002500

30003000

19941994 19951995 19961996 19971997 19981998 19991999 20002000 20012001 2002.62002.6

11 88 2020 6767 210210890890

22502250

29222922

37003700


2.5. 2.5. Market Competition Played Its RoleMarket Competition Played Its Role

* Basic telecom service providers raised to 6 ； and value-added service providers reached to several thousand;

* Mobile telecommunication developed rapidly, playing a substitution effect in the fixed phone service market and took off a large market portion away;

• Role of enhanced competition ： * The charges of service continued to go down in a

reasonable or unreasonable way ： * To obtain competition advantage in the market,

enterprises notably raised their enthusiasm as well as the ability in developing new business.


2.5. 2.5. Market Competition Played Its RoleMarket Competition Played Its Role

• Results of enhanced competition ： * Enterprises’ market promotion awareness increased,

and the number of new customers keeps increasing; * Enterprises put more emphasis on improving service

quality and reduction of users’ complaints ； * Illegitimate competition occurred sometimes and

disputes on network connection increased, government supervision difficulty increased ；

* Business development plan displays importance, as its impact on market competition is obvious


2.6. 2.6. Achievements and Defects of the Achievements and Defects of the Market DevelopmentMarket Development

• Achievements * The total number of users of fixed and

mobile telephone ranks No. 1 in the world and still keeps increasing;

* The technical performance of network keeps in line with the leading level in the world;

* The increase of the revenue is higher than that of GDP; market promising;

* The telecom market tends to see a stable expansion;

* Foreign and domestic investors keep

active investment activities.

• Insufficiency * The pattern of effective market competition

hasn’t been established. Government supervision capability limited and not efficient;

* Enterprises’ comprehensive competitiveness is limited and State-owned enterprises need further reform;

* Unbalanced development in various regions;Telecom service level in western region and rural areas is still low, which adds the pressure for overall coverage service;

* A few enterprises attempt to hold back rivals by using illegitimate ways;

* Pressure of regional over supply exists


2.6. 2.6. Achievements and Defects of the Achievements and Defects of the Market DevelopmentMarket Development

* The pattern of effective market competition hasn’t been established. Government supervision capability limited and not efficient;

• Insufficiency * Enterprises’ comprehensive competitiveness is limited and State-o

wned enterprises need further reform; * Unbalanced development in various regions;Telecom service level

in western region and rural areas is still low, which adds the pressure for overall coverage service;

* A few enterprises attempt to hold back rivals by using illegitimate ways;

* Pressure of regional over supply exists


3.1. 3.1. Recovery of the increase ofRecovery of the increase ofTelecom Business RevenueTelecom Business Revenue

Increase of telecom business revenue in the Increase of telecom business revenue in the first half in 2002first half in 2002

International International businessbusiness

Data Data communicaticommunicati

onon

Domestic long-Domestic long-distance calldistance call

Local network Local network communicationcommunication

Mobile Mobile communicaticommunicati

onon

00

200200

400400

600600

800800

10001000

UnitUnit ：： 100 million 100 million yuanyuan

44.144.136.836.8 5050 8484

222.44222.44 222222

497.8497.8 565565724.41724.41

920.6920.6

First half in First half in 20012001

First half in First half in 20022002


3.2. Business Income Distribution3.2. Business Income Distribution

The proportions of various business in total telecom The proportions of various business in total telecom income in the first half in 2002. Mobile communication income in the first half in 2002. Mobile communication

business became the largest business revenue sector in business became the largest business revenue sector in the whole industrythe whole industry

Mobile Mobile communicationcommunication

Data Data businessbusiness

OthersOthers

Domestic Domestic long-distance long-distance

callcall Local network Local network communicationcommunication

International International businessbusiness

48%48%

6%6% 2%2%4%4%

11%11%

29%29%


3.3. Increase of users in the first half year3.3. Increase of users in the first half year

00

50005000

1000010000

1500015000

2000020000

Fixed Fixed phonephone

Urban Urban phonephone

Rural Rural phonephone

Mobile Mobile phonephone

Total Total number of number of

usersusersNew users in New users in the first half the first half

yearyear

1990019900

19001900

1250012500

13851385

74117411

605605

1760017600

31353135

Unit:ten thousand Unit:ten thousand


3.4. Geographical Distribution of 3.4. Geographical Distribution of Telecom CustomersTelecom Customers

Western Western part part 1919％％

Middle Middle part part 2929％％

East East part part 5252％％


3.5. Market Share of Operators in the First 3.5. Market Share of Operators in the First Half YearHalf Year

3838 ％％

1111 ％％ 11％％ 3333 ％％

1717 ％％

China China TelecomTelecom

CNCCNC

China MobileChina Mobile

China UnicomChina Unicom

CRCCRC


Thanks

Reform Process and Development Situation of China Telecom Industry

Documents