China's crossed phone lines

The fight for market share among mainland telecommunications operators could possibly erupt into a bitter civil war.
Written by William Kazer,SCMP, Contributor
China's telecommunications sector has plunged into an industry-wide civil war with operators cutting rivals' lines, smashing their equipment and beating up their employees.

The outbreak of hostilities has been blamed on a mixture of high-stakes investments, long years of a monopoly mentality and a woefully weak legal system.

In the latest flare-up, upstart operator China Railcom has accused rival China Netcom of cutting its telephone lines to disrupt its business in the northern city of Tangshan.

"We did make some mistakes. We laid cables that were too close to theirs. But we corrected that problem and they still cut our lines," said Rui Xinghe, a Railcom official in Tangshan.

Rui alleged that there were three instances of cut cables linked to China Netcom, including one instance in which a little-known municipal agency snipped their cables without any warning.

China Netcom had no comment on the allegations.

"We just started up in this market and this has really hurt our reputation. Some customers have asked to nullify their contracts," Rui said.

The clash over market share in Tangshan was hardly an isolated incident.

In Suining county, Sichuan, China Telecom workers stormed into the operations center of rival telecommunications firm China Unicom. They smashed equipment and beat up employees in an attack that led to an eight-hour halt in service for Unicom's customers.

In Liaocheng, Shandong, rivals allege that Netcom cut underground cables belonging to Unicom and Railcom, insisting that only it had the right to use cables in the area. Netcom officials could not be reached to reply to the allegations.

One pitched battle between rival telecommunications companies led to cable disruptions that could have threatened the nation's communications with one of its satellites shortly after launch.

Duncan Clark of telecommunications consultants BDA said: "It's the warring states of telecommunications. It's largely due to the murkiness of the legal environment."

"There's still no well-established rule of law so the strong dictate to the weak. The mindsets are fixed in the monopoly era," agreed John Ure, of the University of Hong Kong's Telecommunications Research Project.

Rui concurred, saying that Railcom had called on regulatory authorities in Hebei province to end the Tangshan standoff but there had been no response.

"We want the government to step in and break up this monopoly," he said.

It is more than a little ironic that Railcom is accusing China Netcom of monopoly practices. For one, Railcom was set up by the Ministry of Railways, which is also an investor in China Netcom.

Netcom initially was set up to bring in more competition in the telecommunications sector, which once was monopolized by China Telecom.

A major reorganization, however, has regrouped Netcom, along with smaller communications player Jitong Communications and the north China operations of China Telecom, under the China Netcom Communications Group.

China Telecom now controls the southern and northwestern operations of the former monopoly network.

All of the key players in the sector would like to make a stock offering--much like the highly successful fund-raising forays of China Mobile and China Unicom, the big mobile phone operators.

Railcom, however, is in a weak market position. It started as a trunk line operator but has branched out into small local fixed-line telephone operations, such as in Tangshan.

Analysts are unsure of the prospects of success and want to know if there is enough room in the market for the company.

"Railcom has a window to prove its viability. There is an oversupply of fiber. And it is the most under the gun to get something going," Clark said.

The operators are pouring money into building up their infrastructure.

In many cases, that is creating a duplication of efforts--something that market regulators had long sought to avoid.

"Everyone wants his own network. There is a complete absence of trust," Clark said.

Rui said Railcom would have liked to lease the lines of other providers but found no interest in this form of co-operation.

The heavy investment in infrastructure is being made as the cost of telecommunications is rapidly declining. More competition, particularly under the pressure of Internet Protocol telephone connections, is driving prices down sharply.

Adding to the bitterness is the practise of basing of employee compensation on market performance, according to industry officials.

Employees who are paid on the basis of their company's market share can be extremely eager to keep competitors out, they note.

Regulations on the placement of cables and the right to use them are also unclear.

Ministry of Information Industry officials said there were rules on how close cables could be placed when they crossed another operator's cables, but not when they were parallel.

And in many cases, fiber optic cables have been laid by the People's Liberation Army. Instead of payment in cash, the PLA has at times been given the right to lease the lines to other carriers, making the regulation of the sector even more complicated.

"They (central authorities) have to take more control of the networks," Clark said.

The Ministry of Information Industry, however, does not seem overly concerned by the heightened tension or the confusion over ownership within the sector.

"There are problems with the system," said a ministry official who asked not to be named.

"This is to be expected in our transition from central planning to a market economy. But we shouldn't focus too much on this type of problem."

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