Telecom competition at last?

Beijing is taking another shot at increasing competition in the telecommunication services sector. The new round of restructuring will merge the existing six state-owned companies into three giants who will be able to compete in all segments (mobile, fixed, value-added). Let’s not get too excited though. Lessons from other countries tend to show that it is no easy task to grab market shares from the incumbent. Also, the hoped-for competitive markets tend to turn into duopolies or oligopolies with two dominant players.

The real challenge (and litmus test) for Chinese policy-makers will be to open the fixed and mobile market to both private domestic and foreign investors. In theory, foreign investment is capped at 49% by China’s World Trade Organization commitments; in practice none of the restructured companies will find a significant value in getting an important/strategic investors on board. For sure they will be backed by the government who keeps seeing the telecom sector as both a sovereignty and security issue.

At the end of the day, it is the Chinese consumer and the Chinese economy which might suffer from the government’s unwillingness to open even more to competition.