Bottom line: Beijing should take more aggressive steps to ensure true competition between China’s 3 telcos, to prevent collusion like their current resistance to ending domestic roaming fees.
The latest sign of collusion in China’s telecoms sector was in the headlines last week, as the nation’s big 3 carriers appeared to band together to counter new calls for an end to domestic roaming charges. A number of arguments were put forth for maintaining such fees, but the bottom line is that carrier costs of providing such service are negligible and the fees themselves remain an important revenue source.
The US market, which is most similar to China, eliminated such fees more than a decade ago due to competition between 4 major carriers that emerged in the 1990s. But China’s carriers, while competitive in some areas, appear to be acting together in anti-competitive fashion to resist the change, a common occurrence due to close ties between the companies.
As Beijing tries to breathe new life into this globally lagging group, it should take more steps to encourage real competition by creating truly independent companies that must answer not only to the government but also to private shareholders and the public. It could do that by giving shareholders and consumers more say in choosing top company officials, and by taking decisive steps to discourage this kind of anti-competitive behavior that creates complacency and ultimately stifles innovation.
China’s wireless carriers are quite competitive in their pricing plans, especially as the trio of China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) race to sign up subscribers for their newer 4G services. But they are also quite resistant to letting go of older revenue sources like fees from roaming and traditional text messaging, or SMS.
Declining SMS use was at the center of a major dispute 3 years ago, when China Mobile’s falling text revenues led it to accuse Tencent’s (HKEx: 700) WeChat of operating a stealth network that was stealing the business. That dispute was only resolved after the regulator stepped in and said WeChat wasn’t doing anything wrong, and called on the 2 companies to settle the matter themselves.
The 3 carriers have also worked hard to prevent the implementation of number portability, a globally widespread practice that lets consumers keep their old phone numbers when they change carriers. Despite trialing such a program 5 years ago, China’s carriers have collectively resisted such a practice because it usually boosts competition by making it easier for consumers to change carriers.
Domestic roaming fees fall into a similar category as a policy that is quickly becoming obsolete in the rest of the world. The US was a leader when it eliminated such fees in the early 2000s, and now the 28-member Europe Union is following with its passage last year of new legislation that will phase out such fees within the block. Even India and Russia are taking steps to eliminate such fees.
In response to that movement and calls for China to take similar action, the nation’s 3 carriers have mounted a campaign to show why roaming fees are still necessary, citing factors like differences in development between the more affluent eastern part of the country and the relatively poorer west. The carriers are also pointing out that domestic roaming fees have come down steadily in recent years.
This kind of behavior would be considered collusion in many mature markets, since the companies appear to be acting together to avoid competition that would ultimately force down prices. Such collusion isn’t surprising, since the companies share close ties that often see top officials move back and forth between them. That reality was on prominent display last year, when the chief executives at Unicom and China Telecom suddenly switched places in a move engineered by Beijing.
All that said, Beijing hasn’t been completely idle in addressing anti-competitive practices between this trio. In 2011, the National Development and Reform Commission (NDRC), China’s state-planner, launched an anti-monopoly probe against China Telecom and Unicom for collusion in their wired broadband service, which led both to promise to lower prices and upgrade their networks.
The NDRC or telecoms regulator should once again get tough with the 3 carriers and force them to stop acting together, which would almost certainly lead to the end of domestic roaming charges and other outdated practices. All 3 carriers are publicly traded, and giving more say in their management to some of their non-government stakeholders and also to consumers could help to advance that agenda.
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