MII Tariff Plan Aims to Halt Wireless Price Wars — Telecom Asia
With competition among China’s four telecoms operators growing increasingly fierce, particularly between cellular and Xiaolingtong (Little Smart) services, the government has stepped up its efforts to curbing the ongoing price wars by issuing a decree regulating the tariffs that operators can charge their customers.
Some analysts and industry players believe the decree, which was issued jointly in late June by the MII and the State Development and Reform Committee, will help market regulation and stabilize declines in ARPU, but others have expressed doubts on how effective and even-handed the tariff decree will be.
On the surface, says Dave Carini, business development manager at Beijing-based Norson Telecom Consulting, the decree may help curb the introduction of cheaper price plans, given that all new promotions and packages must now be approved by the MII before they are introduced into the market.
However, he adds, “It still remains to be seen how long the MII will continue its rigid enforcement of the decree and whether or not [cellular] operators will be allowed to use another loophole to make their prices more competitive with Xiaolingtong.”
Helen Zhu, ABN AMRO’s telecoms analyst for Greater China, observed in a research note that “the impact is not as positive as it looks at first glance”. For one thing, the manner in which the decree was issued “further highlights the lack of transparency in China’s telecom market”, she said, pointing out that neither the MII nor any of China’s operators have disclosed the details of the decree.
According to local press reports, the decree reputedly discourages practices such as offering intra-network minutes and incoming calls below cost, and offering cellular or PHS minutes at cheaper rates than fixed line tariffs. Analyst sources, however, say the document doesn’t specify what level of tariffs are allowed or disallowed. The decree also appears to apply only to new price plans introduced in the future, not to existing tariff packages.
Zhu said China’s policy of supporting weaker players to increase competition would also downplay the positive impacts on tariff stabilization, noting that the decree is better news for China Unicom than its larger rival, China Mobile.
“Remembering back to what took the China market from a comfortable duopoly into a full-fledged price war – it was Unicom’s need to fill the CDMA network which triggered handset subsidies and discounts that the regulator turned a blind eye to,” Zhu said.
“This need has not changed, and thus we do not believe there is likely to be a full ban on newer promotions, as CDMA has not proven its ability to differentiate on aspects other than price.”
The same asymmetrical policy will also benefit China Telecom and China Netcom – not just in terms of their Xiaolingtong businesses, but also their anticipated entry into the cellular space once the MII decides to issue 3G licenses, she added.
Carini of Norson Telecom Consulting concurs, saying that the decree will help China Telecom and China Netcom in the short-term, giving them more time to grow their user bases prior to the introduction of 3G licenses.
“The arrival of 3G is likely to shake up the whole system of tariffs, and the government is more likely to allow mobile operators to lower 2G prices as a low end service once they start to see revenue flowing in from 3G users,” he said.