China preps for private MVNOs

China is proposing to open up its tightly-controlled telecom market to privately-owned MVNOs.

A consultation paper issued by the MIIT yesterday sketched out some guidelines for MVNO trials, which would be the first voice or data service to open to privately-owned telecom firms.

But the lack of key details, such as interconnection pricing, and the two-year timeframe for the trials, once more suggests that China has little interest in allowing serious competition to the state-owned incumbents.

The move was foreshadowed last year as the MIIT explored ways of allowing private investment into value-added services, or Type 2 telecoms under Chinese law. Type 1 - or infrastructure ownership - remains exclusively in the hands of the three state-owned operators.

Although the MVNO concept is well-established, with 633 licensed operators worldwide, the paper did not explain why the ministry needs two years to evaluate the service. Essentially an MVNO player needs no more than a brand, a customer care platform, and a deal with an infrastructure owner. There isn't much to test.

Early MVNOs had a high failure rate, mostly because of the high wholesale prices charged by MNOs, but in recent years the market has blossomed. The MIIT paper makes no mention of interconnection pricing or framework, nor does it explain how it would protect incoming players from the incumbents – a glaring omission given the alleged abuses by China’s fixed-line players, and the lack of progress in resolving complaints.

The announcement of the trial, while no surprise, also underlines the MIIT’s disinterest in honouring China’s WTO telecom commitments. Foreign operators can only enter the China market in partnership with an existing operator and with a hefty capital base (some $150-$200 million). Only a small number of VAS areas are open to foreign investors, despite the huge range of VAS services offered domestically.

By contrast, major foreign markets are open to Chinese MVNOs. China Telecom last year won a UK MVNO licence and is planning to expand into other major EU markets.

The MIIT paper did specify that a would-be licensee must have a security management department and must build a “network and information security management system” and an emergency response system.

Chinese website Sohu has nominated internet firms such as Tencent, Baidu, Alibaba were potential licensees. This is pure speculation but, given the limited opportunities in China’s telecom services market, it is unlikely there will be a shortage of firms willing to take a punt on the market.

The MIIT said each individual trial would need to complete within a year. At the end of the trials it would draw its own conclusions and “conduct research into formal MVNO arrangements.”

The consultation period lasts until February 6.