China Telecom Regulator calls for comments on the pilot launch of New Telecom Services

China’s telecommunications regulator, the Ministry of Industry and Information Technology (“MIIT”) has released for public comment the Administrative Measures on Pilot Launch of New Telecommunications Services (the “Measures”).

Background

Lack of regulation of New Telecom Services

The PRC Telecommunications Regulations (2000) (the “Regulations”) and the Classification of Telecommunications Services (2003 Revision) (the “Classification”) remain the cornerstones of the legal framework regulating the Chinese telecom industry. However, for those telecom services that are not mentioned in the Classification (i.e. the “New Telecom Services”), the Regulations provide no detailed provisions except indicating that “if new technology is used to provide, on a trial basis, a new type of telecommunication service not listed in the Classification, such services shall be filed with the telecommunications administration authority...”. With the emergence and rapid growth of various new telecom services and applications, as well as new business models, from the regulator’s point of view a new regulation on such New Telecom Services is needed.

Conflict between Basic Telecom Carriers and new generation of telecommunications and Social Media Providers

It is considered that the Measures were drafted in response to the explosive growth in the Chinese OTT (Over-the-Top) market and the traditional telecom carriers’ concerns regarding new revolutionary applications such as WeChat, QQ and Netflix. The conflict between the new generation of telecommunications and social media providers and traditional telecom carriers became increasingly intense when China Mobile raised a complaint to MIIT against Tencent, the operator of WeChat and openly blamed WeChat for continually occupying China Mobile’s signaling channel and causing congestion in its network. It is believed that the Measures were drafted in an effort to create a balance between and dispute resolution mechanism for the new generation of telecommunications and social media providers and traditional telecom carriers.

Key provisions of the measures

We summarise some key provisions of the measures below:

1. New Telecom Services are now regulated:

• Registration: The pilot launch of New Telecom Services shall be registered with the local communications administrations (i.e. the local branches of MIIT). Failure to do so may attract a warning, a requirement for rectification within a specified period of time and a fine of between 5,000 and 30,000 RMB.
• Supervision: The pilot launch of the New Telecom Services shall be under the supervision of the Regulator. MIIT is responsible for recognition of New Telecom Services and policy making while the local communications administrations are responsible for registration of New Telecom Services and routine supervision of its operation.
• Tracking and monitoring: Each quarter, local communications administrations shall track and monitor the pilot launches of New Telecom Services in their jurisdictions and submit a report to MIIT.
• Pilot period: The pilot period shall not exceed two years in principle and any extension will be subject to further registration with the local communications administrations.

2. Qualified applicants

The Measures are strict on qualified applicants. Under the Measures applicants are limited to either Basic Telecom Service Providers or Value-added Telecom Service Providers, and a company without any telecom licence is not qualified to apply for a New Telecom Service pilot launch.

• Basic Telecom Service Providers may launch new pilot services relating to public network infrastructure, transmission of public data and basic voice communication services; and
• Value-Added Telecom Service Providers may launch new pilot services such as providing telecom and information services via public network infrastructure.

3. Relationship between Basic Telecom Service Providers and Value-added Telecom Service Providers

The Measures also aim at avoiding conflicts between Basic Telecom Service Providers and Value Added Service Providers by the following initiatives:

• Basic Telecom Service Providers shall provide their infrastructure, such as networks and platforms, to other telecom service providers to pilot launch New Telecom Services in adherence to the principles of equality, non-discrimination, non-exclusiveness and consensus by agreement. The Basic Telecom Service Providers’ requirements for the procedure, period and prices with respect to the launch of new pilot services by other telecom service providers shall not be higher than relevant requirements for launch of same type of services by the Basic Telecom Service Providers themselves.
• All telecom service providers must not create obstacles hindering the pilot launch of New Telecom Services by other telecom service providers.
• Regulator’s Coordination: Where other telecom service providers and Basic Telecom Service Providers fail to reach consensus on the pilot launch of New Telecom Services, they may apply for coordination by MIIT and the local communications administrations.

Observations

According to the Measures, MIIT will give priority support where new services launched would serve to:

• promote the innovation in telecom technology and services;
• advance fair competition in the telecom industry; boost the telecom service quality;
• secure the information of telecom service users; and
• facilitate barrier-free exchange of information.

There are various sub-types of basic telecom licences and value-added telecom licences in China, but the Measures are unclear on what specific sub-types of telecom licences would enable an applicant to proceed with its new service launch and what specific sub-types would not.

It is also of note that the registration procedure created by the Measures to some extent equates to an approval procedure. Such a registration procedure may on the one hand promote the orderly growth of New Telecom Services, but on the other hand may slow down the commercialisation of New Telecom Services.