Chinese broadband monopolised

China Unicom and China Telecom, the two biggest telecommunications
operators in the country, are facing an anti-monopoly investigation by
the National Development and Reform Commission (NDRC). The case is related to their actions in the broadband market.

Regulators
in China believe the two companies are using their dominant position,
together they account for more than two thirds of the entire broadband
market, to offer lower prices to non-competitors while charging
competitors higher rates.

The deputy director of the Price
Supervision and Antimonopoly Department of the NDRC, Li Qing, said in an
interview with the government-run China Central Television, “According
to the Anti-Monopoly Law (AML), we call such behaviour price
discrimination. If we can bring about effective competition to the
market, the prices to access the internet could be lowered by 27 percent
to 38 percent in five years.”

It is believed that price
discrimination has been responsible for low quality connection between
the networks of the two companies and also low internet speeds.
According to Li the two companies collectively own bandwidth of 1,078
gigabytes, but they have restricted the amount of bandwidth for
connections between the two networks to 261.5 gigabytes.

In
addition to this causing low capacity, it also resulted in inefficient
inter-connection, says Li. According to official statistics for the
first nine months of 2011, the packet loss and inter-connect delay are
still way above official requirements. This has had a negative impact on
China’s broadband speed, which is only about one tenth of competing
countries, such as Japan, the UK and the USA.

If they are found
guilty, both China Unicom and China Telecom could face fines amounting
to between one and 10 percent of their annual business turnover. Taking
into account that both of these companies have a yearly turnover of more
than RMB30 billion, they could face a substantial fine that might
amount to several billions of RMB, such is the Chinese government’s
current view of monopoly behaviour.

The current Anti-Monopoly Law
(AML) in China is only three years old and there have not been many
groundbreaking cases under the new legislation, apart from interventions
in a small number of merger cases. However, over recent months the
authorities have started to adopt a more hard line approach towards
companies that have been found guilty of monopolistic behaviour. The Municipality of Guangdong, for example, quite recently received a hefty fine under AML legislation.

It
is clear that China fully recognises the disadvantages of having a
monopoly in its telecommunications industry. Indeed, the current
investigation into China Telecom and China Unicom is not the first
attempt to bring about a more competitive marketplace. As long ago as
the 1990s, the creation of China Unicom, itself, was seen as an attempt
by the government to establish more competition in the industry.

In
a statement released on November 9, China Unicom denied the
allegations. The company stated that it had “always provided broadband
services strictly in accordance with the relevant laws and regulations.”