Engineered competition… not a solution

The creation of 3 integrated operators in China’s telecommunication market was intended to achieve what several rounds of reforms have failed to do over the past 15 years: create meaningful competition.

The new government-engineered reform is already facing some challenges. China Mobile which ended up with the fixed network of China Tietong – formerly China Railway Telecom – is seeing its merger delayed by at least 3 months. The culprit appears to be the integration of the operator’s back-office systems for its wireless network with those of Tietong’s fixed-line network.

In the meantime, China Telecom and China Netcome have already completed their side of the merger and are starting to offer new services. This “asymmetric” treatment of the operators may reduce the dominance of China Mobile. But it is also proof that such engineered re-shuffling of competitive forces does not always make “market” sense.

As long as the operators remain state-owned, the government will face conflicting goals between generating revenues for the State and benefitting consumers through cheaper prices or innovation. The days of co-ordinated competition are not over!