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Over the past two decades, the telecommunication industry has undergone significant technological changes and has experienced fierce competition. China has become the largest telecommunication market in the world, with 300 million subscribers but only 20.1% penetration (2005). The huge market opportunity attracts foreign investors as well as local companies. However the telecommunication industry in China is still under rigid control of government, although it has undergone several reforms, changing from completely monopoly to full service competition among three major operators. Since the 3G licenses were issued to China Telecom, China Mobile and China Unicom in 2008, Chinese telecommunication industry has entered a brand new era. The three major carriers, China Mobile, China Telecom and China Unicom all have the infrastructure and network to operate in fixed-line-telecom, mobile and internet services. China Mobile has emerged as the biggest player in mobile network, but it has no experience in the fix-line telephone network (FTN). With the 3G license and the acquisition of China Unicom's CDMA net, China Telecom not only occupies the dominate position in FTN, but also joins the competition in mobile industry. China Unicom has taken a considerable percent of market share in mobile market, however it lacks the financial and technical resources as its competitors. But the merge with China Netcom, which has 30% of FTN in the northern China, brought substantial advantages. This research focuses on the history of restructuring in Chinese telecommunication industry, the current competition among three major operators, and the possible future in the 3G era. How does the telecommunication industry develop under the policy of state-owned and foreign-investment restricted? Do the existing companies satisfy market demand? Will China follow the path of liberalization and privatization or will the dragon open up a new path? These are the questions that this research is trying to resolve.
III. Brief Literature Review
There is intensive literature about revolutions in telecommunication policies. And there is some literature on the performance of major players before the significant reform in 2008. Some particular papers compare the efficiency of Chinese telecommunication industry with other developing countries. But there is a gap since the 3G licenses were issued to China Telecom, China Mobile and China Unicom. The industry has entered the era of full service competition, which means all three companies can compete in FTN, mobile services and internet data communication. This situation has never happened before and there are few researches focusing on it. The future development is full of uncertainties.
3.1 History of Chinese Telecommunication Development
3.1.1 Stage 1 Pre-1994
In 1949, the Minister of Post & Telecommunication (MPT) was established. Until 1994, MPT enjoyed exclusive monopoly in offering public telecommunications services. There were less than 700,000 mobile phone subscribers in China (Yu & Tan, 2005). And the phone penetration was only 3.2% (MPT, 1997).
3.1.2 Stage 2 1994-1998
By the 1990s, “the central government came to realize that the liberalization of telecommunications industry was inevitable” (Holman, 1994). In 1994, the monopoly of the MPT was broken by government in the way of establishing new state-owned enterprises. China United Telecommunications (China Unicom) was set up to promote domestic competition. It is a joint venture of the Minister of Electronics and Information (MEI), Minister of Railways (MOR) and 13 large state-owned enterprises. However China Telecom still controlled the only public Fixed Telephone Network (FTN) in China and all funding and personnel of China Telecom came directly from the MPT. China Unicom was at a serious competitive disadvantage, and was mainly restricted to the mobile sector (Yan & Pitt, 1999). The market share of China Unicom in the mobile phone service was less than 2% by the end of 1997 (China Daily 15 January 1999). In 1996, Jitong Network Communications Company (Jitong), originally set up to monitor the Golden Bridge Project, became the third telecommunications operator in China.
The first significant reform happened in March 1998, the MPT and the MEI were merged to form the Ministry of Information Industry (MII), which oversees the telecommunications, multimedia, broadcasting, satellites and the Internet of China. As opposed to MPT's negative attitude towards China Unicom, MII did huge contribution to the development of China Unicom. MII derived Guoxin Paging from China Telecom, which was a very profitable business, to merge with China Unicom. This restructure laid the ground for the public listing of China Unicom in the following year. China Netcom was established as the fourth commercial operator in this restructuring.
3.1.3 Stage 3 1999-2002
In 2000, the China Mobile Communications Group (China Mobile) and China Satellite Communications Group (China Satellite) broke away from China Telecom in order to foster domestic competition and facilitate efficiency. China Railway Communications Corporation (China Railcom) was set up to be China's seventh major telecommunication carrier.
To further break the power of China Telecom, which still owns 80% of the FTN market, the MII announced another round of organizational restructuring in 2002. China Telecom was reorganized geographically. It retained only 70% of its backbone network in South China. The other 30% of the network was handed over to the new China Netcom Group, formed by the merging of China Netcom and Jitong (B.P.Y. Loo, 2004). This reform resolves the criticism that the liberalization of the telecommunications sector never touched on the FTNs (Zhang, 2001). By the end of 2002, there are 6 major operators: China Telecom (FTN and data connection), China Unicom (FTN, Mobile and data connection), China Mobile (mobile service), China Netcom (data connection), China Railcom (FTN and data connections), and China Satellite (satellite communication). This structure ensures that there are at least two competitors in each major field of telecommunication service. The situation of competition is initially established.
3.1.4 Stage 4 2008-present
On 23 May 2008, in order to make full use of the telecommunication resource and encourage healthy competition in telecommunication markets, six operators were merged into three. China Mobile and China Railcom were merged into the new China Mobile. The G-net (GSM) of China Unicom and China Netcom were merged into the new China Unicom. The C-net (CDMA) of China Unicom, China Satellite and China Telecom were merged into the new China Telecom. They are allowed to offer the full range of FTN, mobile, data connection and other basic telecommunications services. And they are issued 3G (the third generation technologies) licenses, which were predicted to increase the competition within telecommunication industry substantially. This policy was extremely different from the previous policy under which most operators could offer either mobile or fixed-line services. Thus, China Telecom, China Mobile and China Unicom become the three major operators in Chinese telecommunication market.
3.2 Chinese characteristics compared with other countries
Liao C. and Gonzalez D.B. (2009) analyzed the operational efficiency of mobile operators in Brazil, Russia, India and China by using three indicators: revenue per employee, revenue per total asset and revenue per capital expenditure. Common market features among these four markets are low penetration rates for mobile, Internet, and fixed-line services, no 3G licenses were issued in any of these four markets until 2007, and Brazil, Russia and India only privatized their telecommunications sectors in the 1990s.
From the figure above, we can see that China Mobile and China Unicom rank before the operators in Russia and India, but lag behind those in Brazil, especially in the indicator of revenue per employee, which means the productivity per employee remains to be improved. But China Unicom has the highest revenue per capital expenditure among the 10 operators, twice higher than its domestic competitor China Mobile. However these figures are based on revenue rather than profit or operating profit margins, therefore the costs efficiency are neglected.
Different from other developing countries, China did not resort to liberalization or privatization to solve its financing problems in the period of rapid network expansion (Zhang B. 2002). The Chinese government insists that its intervention in setting standards for operators accelerates the realization of network externalities and reduces technological or economic uncertainty (Yu J. and Tan K.H. 2005). Foreign investors could contribute only money and technology, but have little influence in decision making. But Chinese government is taking steps to allow foreign companies to play a greater role in fostering a more efficient communication network, which can be seen in China Unicom's joint venture with SK Telecom, the largest mobile carrier in South Korea, and the Spanish telecommunications operator Telefónica.
A mixed methods approach is adopted in this research. Both qualitative and quantitative methods, such as interviews, questionnaires and secondary data analysis, are used in order to answer different aspects of the research question.
4.1 Secondary and official data analysis
Analyze the performance of three major players—China Telecom, China Mobile, China Unicom in the recent 5 years, including financial performance (revenue, profit margin, asset utilization, etc.), infrastructure efficiency, market share, subscribers and ARPU (Average Revenue per User). This is the major part of quantitative research.
Interview 1-3 mid-level managers in each of the three companies, who should have worked in telecommunication industry for at least 10 years. The interviews are semi-structured (Bryman & Bell, 2007), which means the interviewer has a series of questions that are in the general form of an interview schedule, but is able to vary the sequence of questions. And further questions may be asked depending on the answer given by the interviewees. The objectives of the interviews are to further understand the response to each reform in the past 20 years, what are the strategies towards current 3G era competition and what do they prepare for the next 10 years, what are their opinion on liberalization and privatization of telecommunication industry. All interviewees will be informed of the purpose of the research, and given the choice of whether to be anonymous. The information and opinions given in the interviews will not serve any commercial purpose, purely for academic use. The interviews will be recorded and transcribed for reviewing by the interviewer and the University of Edinburgh, and will not be passed on to any other organizations without the permission of interviewees. Public available information is also analyzed. This is the major part of qualitative research.
The questionnaires are designed for telecom customers across China.The sample size is planned to be 300, and the method is snowball sampling (Bryman & Bell, 2007). The researcher makes contact with a group of people who are active telecommunication users, and then uses these to establish contacts with others. The snowball sampling is not entirely random; it is very unlikely that the sample will be representative of the population. However this is not a probability research, the objectives are to understand the consumer satisfaction, to know which brand they have been using, whether they are satisfied with the telecommunication service, what are their opinions of 3G communication, what takes them to switch to another brand, and if they are looking for more choices in the future. The starting point of this snowball sample is a group of young, well-educated, new technology followers, who are the main target of future telecommunication services.
4.4 Data to be collected
Financial statements of China mobile, China Telecom and China Unicom from 2005 to 2009
Market share, subscriber numbers, ARPU (Average Revenue per User) and technical efficiency of developed countries (such as UK) and developing countries (such as India, Brazil)
Data from interviews and questionnaires
4.5 Statistical techniques
SPSS and Excel spreadsheet will be used to analyze questionnaires and financial data.
V. Context, time-frame and feasibility
The summary of history is mainly solved by literature review, which is a very important part of this dissertation. Therefore the first few months (from February to May) is spent on collecting and reviewing literature. Only when the development history of Chinese telecommunication industry is clarified, can the research on current competition situation and future trends be conducted.
The second part is the analysis of present competition among the three major operators. In order to assess each company's performance, financial and market performance data are collected. Main focus is the revenue and profit growth, market capitalization, asset utilization, consumer satisfaction and efficiency. If time permitted, data of other countries (both developing and developed countries) will be compared. This part is done by secondary data and questionnaire analysis. The researcher has gained data analysis ability in Msc in Management program.
The third part is to predict future trend and give suggestions based on above analysis. The researcher's mother has been working in China Telecom since 1980s, therefore she has experienced all those reforms and has established relationship with personnel in China Telecom, China Mobile and China Unicom. The researcher will be able to interviews with mid-level managers in the three big companies, either in face or by telephone. The objective of the interviews is to better understand the strategy of those companies towards the 3G era and full service competition.
5.1 Proposed Research Time-Table
Literature review and methodology
Obtain relevant published statistics and start analyzing
Conduct interviews and questionnaires
Collect and summarize the information
Analyze the statistics and information
Work on discussion and conclusion
Review and amend the paper
VI. Likely problems to be addressed
The first problem may be the acquisition of the data. The financial statements of three companies are available online, but the infrastructure efficiency, market share, subscribers and ARPU (Average Revenue per User) are not directly available. There are researches about it, but different researchers use different methodology and reach different results. And the time differences should also be taken into consideration. The results that are available are not so up to date. Therefore the researcher should use a proper method to calculate the secondary data in order to make them comparable.
The second problem is interviewing with managers. It is not likely to interview top-level managers such as CEO. However mid-level managers may not be concerned about company strategy and future development; their opinions are subjective and may not be consistent with the parent company. This problem is addressed by other public information.
The third problem is the sample of the questionnaires. The approach of the questionnaires is snowball sampling. Therefore it is not entirely random, the age and region may fall in a similar scope. And the questionnaires are carried out in a second language of the main respondents, the effectiveness may be affected.
VII. Potential contribution to theory, knowledge and practice
China is the biggest telecommunication market in the world, with a population of 1.3 billion but only 20.1% telephone penetration. The huge market opportunity attracts both foreign investors and local companies. However this industry is under strict control of center government, although it underwent several major reforms, changing from completely monopoly to full service competition among three state-owned companies. The development pattern of Chinese telecommunication industry is unique and is studied by many researchers. By understanding the history and analyzing current situation, we will be able to provide suggestions for future development, and predict possible changes in advance. This research fills the gap since the main restructure in 2008, and offers a brand new view towards 3G era. This will be incredibly valuable to current players, potential entries and foreign investors.
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