World Finance

Telecommunications companies accused of monopoly meddling

Reported anti-monopoly case held against two of the country's biggest telecommunications providers, China Telecom and China Unicom, in one of China's more high profile inquiries

23 Nov 2011

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 telecommunications market.

Regulators in China believe the two telecommunications companies are using their dominant position - together they account for more than two thirds of the entire broadband and telecommunications 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 telecommunications 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 the telecommunications leaders 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.”