Tce emergence of new broadband technologies has forced the world's teleoms, broadcast and information bureaucracies to deal with two central issues ?competition and network convergence.
In China, the sweeping reforms announced in March 1998 included the establishment of the Ministry of Information Industry (MU) which was formed to address these issues. Although the advent of MII is a major step in bringing order and openness to China's information technology picture, much remains to be done before foreign investors and technology suppliers can be sure of their footing in China's telecoms and broadcast markets.
MII is a super-ministry under the State Council. It was formed through the merger of several other governmental ministries and agencies, principally the former Ministry of Posts and Telecommunications (MPT), the Ministry of Electronics Industry (MEI), the State Radio Commission and the State Council Leading Group on Informatisation. The administrative functions of the former Ministry of Radio, Film and Television and the network of the Ministry of Aerospace Industry were also folded into MII.
A separation of functions
MII is dominated by the former MPT. Wu Jichuan, the former head of MPT, is now head of MII. Three of the five current vice-ministers of MII are also from the former MPT, as are 230 of the approximately 310 MII employees. The influence of former MEI in MII was diminished with the rapid departure of the new ministry's executive vice-minister, Liu Jianfeng, who was the former vice-minister of MEI. It has been reported widely in the Chinese press that Liu had hoped to be minister of information industry and he has not and may not be replaced.
The former MPT was founded on November 1, 1949, one month after the proclamation of the People's Republic of China. It monopolised public telecommunications until 1994, when Unicorn began to operate wireless services in various localities.
Institutionally,. MPT remained largely unchanged until 1994. In that year, the government attempted to split the operationfrom the regulation of China's public telecommunications networks by forming China Telecom to operate MPT's network and by establishing the Directorate General of MPT as the regulatory body for all public telecommunications networks.
However, administrative/management separation within MPT was largely in name only since many of the top-level officials of the Directorate General held concurrent positions at China Telecom. In the absence of an anti-trust law and an independent judiciary, Unicorn was hampered from its inception by MPT with respect to interconnects and operating permits, notwithstanding direct orders by the State Council for MPT to co-operate with Unicorn. This contrasts with the experience of MCI in the US in the late 1970s when MCI was able to overcome AT&T's obstructionism with the assistance of the US Federal Courts, on the basis of US anti-trust law.
Even though MPT was largely successful in slowing Unicorn's development, its own empire fell prey to centrifugal forces as the provinces and localities increasingly asserted themselves in constructing their networks.
Prior to the March 1998 reforms, MPT operated at the provincial and local levels through Posts and Telecommunications Administrations (PTAs) and Bureaus (PTBs). PTAs and PTBs became increasingly autonomous as MPT allowed them to grant operating permits, finance local network and equipment costs, and keep the bulk of the revenues. If a project did not exceed a particular monetary threshold or cross provincial boundaries, MY!' was given only a notification filing. Although this arrangement arguably speeded up China's telecoms network construction, it has also led to a proliferation of competing, and sometimes conflicting, standards. Often, black boxes need to be installed in order to overcome interconnection problems between the European, US and Japanese standards which co-exist.
In fact MPT has resisted both internal competition and foreign participation on the service side because it has been successful in building out its network with its own resources, whether at the local or central level. China's teledensity rate has grown from under 0.5 per cent in 1979 to approximately eight per cent currently.
The former MEI was split off in 1993 as a separate ministry from the former Ministry of Machinery and Electronics Industry. MEI was responsible for formulating strategies for and regulating China's electronics industry. In that connection, it sponsored, examined and approved major electronics projects and was responsible for increasing production of the industry and promoting the development of software and information systems. MEI also sponsored two telecoms net-works, Liantong (Unicorn) and Jitong.
Although Unicorn was authorised pursuant to State Council Document 178 to participate in four areas of telecommunications service ?wireless mobile, paging, local and long distance fixed line, and data communications ?after the first three years of operation many areas of disagreement remained between Unicorn and MPT. As a result, Unicorn's growth and prospects were severely limited.
MPT consistently took the position that Unicorn was a secondary and domestic, not a primary and public and international network. On that basis MPT hampered Unicorn's inter-connection to the public switched telephone network and insisted that Unicorn implement MPT standards and that it conform with MPT's rate structure. MPT also refused to give Unicorn preferential pricing.
In addition to these problems, Unicorn has suffered from excessive organisational diversity and the lack of a clear and consistent business model. Unicorn has also been plagued by low investment yields, delays in network construction and the failure of much promised investment to arrive. Foreign telecoms companies, not to mention Unicorn itself, have been hoping that the advent of MII means that the playing field will be levelled between MII and Unicorn. The make-up of the leadership of MII and the departure of Liu Jianfeng are reasons to be sceptical.
Turf struggle continues
The former Ministry of Radio, Film and Television (MRFT) began as the broadcasting arm of the civil war era Communist forces. In 1953, the central government established the Central Broadcasting Enter-prise Bureau with the tasks of disseminating propaganda and building the broadcast enterprise structure. This bureau eventually became MRFT.
In March of this year, the administrative functions of MRFT were given to MII. RFT General Bureau, which is directly under the
The charter of MII is to promote the development and production of information technology products and services and formulate plans, policies, laws and regulations for the information technology sector while avoiding overlapping construction and ensuring information security. MII already includes various aspects of the aerospace net-works. In light of President Jiang Zemin's recent order to the military to cease civilian business activities, MII's telecommunica-
tions regulatory monopoly is likely to be strengthened as it expands to civilian-use telecommunications networks once run by the military. Again, foreigners must take care in this shifting environment in dealing with any military-owned telecommunications or broadcast entity and to understand the timing and circumstances under which ownership or control of such an entity is transferred.
The vice-ministerial structure of MII in order of seniority is as follows: Yang Xianzu, State Council, was established to operate the MRFT network. The organisational reshuffle concerning China's information industry may not yet be complete. There have been reports that the Ministry of Culture whose head, Sun Jiazheng, was previously head of MRFT, will take over supervision of RFT General Bureau within two to three years. In any case, since the establishment of a broad-casting authority of the People's Republic, the Communist Party has exercised over-sight with respect to content and content-related technical issues.
Starting in 1993, MRFT created what is now the largest cable television network in the world. According to MRFT there are currently approximately 70m subscribers, although estimates by other sources vary widely. This huge and growing network was developed largely in response to a comment by Mr Rupert Murdoch, the media tycoon, on the effect of the free flow of information via satellite on totalitarian regimes. Instead of allowing foreign satellite service providers to invade China's airwaves with unwelcome political, social and economic messages, the Chinese- pre-empted the field by banning satellite dishes and quickly building a competitively-priced cable television network (Yn8-15 a month).
The initial cable television network infrastructure has been upgraded in most major urban areas to 750 MHz and will go digital by 2005. The most advanced net-works in China are two-way capable and some of these are operational in limited areas. MRFT attempted to provide public voice and data services over some of these networks and has also attempted to obtain its own international gateway for Internet access. MPT's vociferous objections blocked both efforts. Even after the reforms of this past March, the turf struggle continues between MII and MRFT's sub-ministerial successor, the RFT General Bureau. It remains to be seen whether the cable television stations will be any more successful in either respect under MII.
Clearly, lines of power between MII and RFT General Bureau will have to be clarified before foreign investors and technology suppliers will feel completely comfortable in committing to major broadband projects.
Structure and staffing of MII
The formation of MII and the many changes and reductions in staff and organisation from its predecessor, constituent ministries mean that foreign investors must map carefully their relationships and the new structure and also must form new relationships where necessary.
work construction and services. Some of these entities are dominated by PTAs, PTBs or local RFT bureaux. In other cases, provincial governments or municipalities have successfully persuaded all local suppliers to co-operate and even form joint-stock companies to unify transmission platforms.
Outlook for foreigners
According to pronouncements by Wu Jichuan this past summer, foreign participation in the ownership and management of telecommunications and broadcast networks will continue to be prohibited.
It is too soon to say whether China Telecom, Unicorn, the cable television networks and other telecommunications and broad-casting entities will remain in their current organisational form and, if so, whether these entities will be allowed to compete in each others' businesses. It is also possible that the existing enterprise and administrative structures will be replaced by ones that are organised along the lines of the functions of the various networks ?voice, video and data.
The Chinese government has been promising for several years to enact a telecommunications law. In fairness, they have been looking to Washington and its Telecommunications Act of 1996 for guidance that has been sorely lacking even in the US. However, China needs a telecommunications law in order to create an overarching legal structure for this crucial sector and also for increased transparency for China's accession to WTO. When such a law is finally enacted, it will probably be long on general principles and short on detailed guidance.
MII has a major task in bringing order to such a complex environment. As with trans-actions involving the central government, foreigners will have to perform careful due diligence on their prospective partners. In the meantime, in cases where they are pre-pared to undertake the risk of institutional uncertainty, foreign telecoms companies will have to look to the common Chinese practice of accommodating business arrangements concluded in the absence of controlling laws by grandfathering them under any new regulatory regime.
59, former MPT vice-minister; Lu Xinkui, 57, former MEl vice-minister; Qu Weizhi, 54, former MEI vice-minister; Zhou Deqiang, 56, former MPT vice-minister; postal director-general and Party secretary: Liu Liqing, 57, former MPT vice-minister.
Mli's provincial structure is being put into place slowly. The creation of Provincial Information Administrations and Bureaux(PIIs) will have to take into account a wide variety of administrative structures. In some places, the still-extant PTAs, PTBs and RFT bureaux operate completely independently of each other. Occasionally they operate in direct competition with one another. In other places, `InfoPorts' have been established by provincial or municipal authorities to promote and co-ordinate information net-
This article was written by Warren H Rothman and Jonathan P Barker of Roth-man, Barker & Associates Inc. For further information please contact either of them at 650 California St., 12/F, San Francisco, CA 94108. Phone: (415) 249 4110, Fax: (415) 249 4177. Web site http://www.rothmanbarkercom. O 1998 Rothman, Barker & Associates Inc. All rights reserved.
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