Customers handle business at China Telecom (left) and China Unicom, China's two leading telecommunications providers. Photos: CFP
"I really am going to cry," Xu Weihua, a director at China Telecom's e-Customer Service Center, exclaimed on his Sina Weibo on November 9. "No one cries 'monopoly' when talking about how cable television, electricity, and gas are respectively provided by one operator, or how we are paying a price for petrol set by the two national providers. But when there is an industry where several operators are competing to promoting services and are reducing prices, some begin to claim there's a 'monopoly'."
Earlier that day, an official with the National Development and Reform Commission (NDRC) confirmed with China Central Television (CCTV) that they are conducting an investigation of China Telecom and China Unicom, China's two telecommunication giants, over alleged monopolistic practices in the broadband access business.
This is the first time since the Anti-Monopoly Law came into effect in 2008 that the government has opened an investigation in to large enterprises, Xinhua reported.
Li Qing, deputy head of the NDRC's price supervision and anti-monopoly department, said in a CCTV interview that they opened the investigation once receiving reports in the first half of the year.
Li said that China Telecom's annual income from providing Internet access is about 50 billion yuan ($7.88 billion), while China Unicom's is 30 billion yuan.
"If proof of monopolistic practices is found, the two companies could be fined between 1 and 10 percent of their annual Internet service revenue," said Li.
Controversial leak
The NDRC's price supervision and anti-monopoly department sent an investigation notice to the two companies in April, and two months later, each handed in feedback reports in their defense, Xinhua reported.
At a meeting between the NDRC and other related departments to discuss the investigation, it was decided that until sufficient proofs could be found the investigation should be kept quiet.
Customers handle business at China Telecom (left) and China Unicom, China's two leading telecommunications providers.
At noon on November 9, Li disclosed the anti-monopoly investigation to the CCTV, leaving government departments in shock. As the news broke, overseas stock prices of the two companies dropped, Xinhua reported.
Qiu Baochang, legal advisor with the China Consumers Association, told Xinhua that he believes that this "lack of caution" by the NDRC is a possible violation of Anti-Monopoly Law regulations.
In the report, Li said that the two companies together possessed more than two thirds share of the Internet access market, and that the two were taking advantage of their dominant status and engaging in price discrimination.
According to the Anti-Monopoly Law, if two operators together possess 67 percent market share, they officially hold a dominant position in the market.
Wu Suoning, editor-in-chief of People's Posts and Telecommunications News (PPTN), told Xinhua that it is ridiculous to judge monopolistic practices based solely on more than a two thirds share of the broadband market.
"Telecommunication industries all over the world have similar structures. For example, the Nippon Telegraph and Telephone Corporation (NTT) held an 80 percent market share in the Japanese market," said Wu.
Competitor complaints
According to China Business News (CBN), the NDRC's investigation focuses solely on whether the industry giants hold a monopoly over the sector of the broadband access market where they provide bandwidth to other Internet access operators, and not on the two's end-user market.
Some insiders believe that since the two companies' total income from broadband service includes that of the end-user market, the potential fine should not be based on their total income, the newspaper reported.
Statistics provided by the PPTN show that were the end-user market to be excluded, the total annual income from the broadband access market of the two companies would be less than 200 million yuan, CBN reported.
The two companies' standard interconnection charges have also sparked complaints from competitors.
According to regulations, no interconnection charges between the three major operator networks - China Telecom, China Unicom and the China Education and Research Network, are allowed, while mid-sized operators generally have to pay these operators monthly, but no more than 1,000 yuan per megabyte (MB). At the same time, other smaller operators are able to negotiate lower prices with major operators.
The CBN report said that because smaller operators usually have a lower settlement price, some mid-sized operators attempt to buy their network flow to save costs.
China Telecom launched a campaign to clean up such practices this year, which led to many operators' Internet being disconnected, further deepening the conflict between mid-sized and major operators, said the report.
Sun Qi, a media center staff member at Great Wall Broadband Network, refused to comment on the monopoly case, only telling the Global Times that they did have a different settlement standard from that of other operators, such as Sohu. "The price provided for us to rent bandwidth is 1 million yuan per gigabyte (GB), while for Sohu, it is only 300,000 - 500,000 yuan," he said.
An anonymous insider at China Tie Tong Telecommunications complained to the newspaper that because of the settlement standard set by China Telecom, even they don't consider developing and maintaining customers, as they have to pay 600 million yuan annually, on top of their entire broadband service income to the Internet giant.
Xu Shiying, a professor specializing in competition law at East China University of Political Science and Law, told the CBN that whatever interests there are behind the investigation, it is the first use of the Anti-Monopoly Law on central government-controlled State-owned enterprises.
"It shows that the Anti-Monopoly Law is unbiased, and large enterprises should be aware of this," said Xu.
According to statistics quoted by Xinhua, in 2010, China ranked 71st in broadband Internet speeds, while the average access fee per MB per second paid by each user was three or four times that of developed countries.
"Reform is needed to dismantle the monopoly in the telecommunication industry," says Jiang Qiping, a telecommunication industry expert.