Global VSAT Review: China’s Great Wall Gets A Door

By | July 1, 2002 | Via Satellite

by David Hartshorn

The final countdown is underway. There are just 17 months left until the first liberalization of the Chinese telecom market is scheduled to take effect as part of the country’s commitments to the World Trade Organization (WTO) Basic Telecommunications Agreement.

While foreign VSAT system providers have sold thousands of terminals in the People’s Republic of China (China) in recent years, the regulatory change may mean that–for the first time–non-Chinese VSAT-based service providers are also permitted to pass through the Great Wall and enter China’s satellite communications market.

So says Squire, Sanders and Dempsey (SSD), which in a recent internal briefing advised the Global VSAT Forum (GVF) association’s members that China has agreed to permit foreign investment at the following levels:

  • 50 percent foreign equity participation for value-added services (including e-mail, voicemail, Internet access, online information, database retrieval, and value-added facsimile services) two years after China’s accession to the WTO;
  • 49 percent foreign equity participation for mobile voice and data services (including all analog, digital, cellular and personal communications services) five years after accession; and
  • 49 percent foreign equity participation for domestic and international services (including voice, fax and data) six years after accession.

China’s Ministry of Information Industry (MII) crafted its service classifications in very broad terms, presumably in order to keep the service-types technically neutral. Thus, the GVF legal briefing suggests that would-be investors exercise prudence by seeking clarification with MII if their services do not fit easily into one of the loosely defined categories of basic or value-added services.

“The potential for confusion is particularly apparent with respect to VSAT services. Depending on the type of services provided, a VSAT network can potentially be both a basic service and a value-added service,” says Bruce Olcott, a satellite communications attorney with SSD. Through an informal discussion with an MII official, SSD confirmed that the rationale for this administrative abnormality is because the MII recognizes a VSAT network as a facilities-based system that can be used to provide basic telecommunications services. The MII also recognizes, however, that VSAT network service providers often use VSAT networks to provide value-added telecommunications services to their customers.

Understanding this reasoning, the GVF counsel explains that MII appears to have concluded it would be inappropriate to regulate VSAT networks in the same manner as basic telecommunications services. As a result, it appears a provider of VSAT network services in China requires only a VSAT Value-Added Telecommunications Services License to operate.

Space segment service providers are, however, another matter. On November 26, 2001, the head of MII, Wu Jichuan, confirmed China’s plans for an administrative consolidation of the nine active domestic telecommunications operators in China into six groups–China Netcom Jitong Communications Group, China Mobile, China Unicom, China Railcom and China Satellite–including a north-south geographic split of monolithic China Telecom.

These reforms are reportedly in preparation for a virtual tsunami of mergers and consolidations involving Sino-foreign ventures. It is widely believed that China Satellite will be able to avoid a government-mandated merger and should survive as one of the six remaining major players in the market.

Once the reforms are complete, each of the six main groups of domestic operators will likely receive nationwide licenses to provide a full range of telecommunications services. SSD estimates, however, that the new licenses are likely to lead to greater competition for China Satellite in the satellite communications market.

The anticipated reforms create a significant potential opportunity for a limited number of foreign investors seeking to provide satellite services in China. Olcott recommends that aspiring investors should consider the possibility of entering into partnerships with one or more of the five post-reorganized domestic telecommunications operators in China in anticipation that all or most of them are likely to receive the necessary licenses to provide satellite services in the near future.

Another area of potential opportunity posed by the WTO relates to the way in which China licenses VSAT networks and issues type approvals for satellite earth station equipment. This became apparent last year during a meeting involving GVF and MII officials. The senior MII representative acknowledged that China’s WTO negotiations with the United States included a reciprocity provision. This means that the equivalent regulatory treatment needs to be applied to U.S. VSAT network operators in China as is applied to Chinese VSAT network operators in the United States.

From foreign network service providers to satellite-operator landing rights to streamlined earth station regulations…any one of these developments would represent a foot firmly in China’s door. But a word to the wise: Doors can be shut just as quickly as they are opened. Watch your toes.

David Hartshorn is the Secretary General of the Global VSAT Forum. His e-mail address is david.hartshorn@gvf.org.

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