Some backgrounds of China universal service---Village Access Project (Chunxia Bai)

1. Some backgrounds of China universal service---Village Access Project(Chunxia Bai)

2. Definition of UF in China China Administrative System (Mainland) Federal Central Government Provincal government (31) State Universal Service Project VA Target: Town and village The basic goal Administrative Villages /natural villages must have access to telephones The minimum requirement at least two telephones be available in an village, one in the public telephone booth and the other in the office of villagers' committee City (333) County (2861) Town(44067) Administrative Village(700 thousands) An administrative village might include several natural villages

3. VAP started in 2005, why? Since 2000, China telecommunication industry facilitated liberalization and privatization, in the meantime. gap between urban and rural in China enlarged and aroused concerns. • 1997, ChinaTelecom (Hong Kong) with 51% private ownership set up, operated in 2 provinces;1999-2000, Competition between ChinaTelecom and new carriers ( China Mobile, China Unicom , China Railcom, China Satcom ) started • 2000, China Unicom IPO in New York and Hongkong stock markets, first foreign joint venture (AT&T) enter China telecom.service market; • 2000-2004, 4 major carriers all became mixed ownership with strategic foreign investors join.

4. China Rural Communications development Phase in Goals Phase One (Before 1997) All Counties established local Exchanges Phase two (before 2004) Network extend to towns and villages Phase Three (before 2007) more than 95% of administrative villages have telephone Access at the end of 2005, 100% by 2007. VAP Phase Four (by 2010) All natural villages access to phone. VAP All towns connect to Internet Phase Five (2020) All families access to phones Now in Phase 3 and Phase 4

5. Roadmap of China Universal Service (national level ) Scope Low Income Group Pubilc Service Organizations (Schools &Hospitals) city town village family individual High cost areas Coverage Basic Telephone Phase three Internet/Information services Phase four Services Phase five

6. Since 2007 VAP extend to three parts 2008 VAP statistics: • VAP:99.7% administrative villages, 92.4% natural villages access to phones (at least two phones in each villages)； • Rural Internet : • Whole country 98% towns access to Internet, among them 97% towns by Broadband. In 27 provinces Internet is available is available for all towns. • Whole country 89% administrative villages could connect to Internet, In 19 provinces Internet is available for every administrative villages. 3. Rural Information Service • Rural oriented Website, Town Information Station, and IT training , • experiments in 10 provinces

7. Broadband penetration rate gap in China • China Broadband subscribers 71.84m ( 2008 is 83.4m), Top two in the world • But national penetration only 5.3% Sharply Gap between regions: • Beijing Shanghai: 30%; • Eastern,8.45％； • Mid-ern, 3.46％； • Western, 2.98％ TeleInfo,CATR,2007

8. MobileCommunicationsgap 来源：MII

9. How to implement VA Project in China VA project is a kind of Socialistic Type of Campaign ----- Promoting rural economic development, enforcing rural education and enriching rural lives byestablishing information infrastructures and service platform in rural areas. -----Several governmental departments including MIIT, NDRC, SASAC and MA involved in VAP in policy making and planning -----A Transition from Political Campaign to Market Oriented Mechanism • Planner and manager: MII (now MIIT) and its provincialbranches. • Undertakers：6 telecommunications carriers( consolidated into 3 in 2008) • Time frame: 2004 experiment in 13 provinces since 2005 rollout in whole country General goals to 2020.. MII, Telecomm. regulator; NDRC: competition authority; SASAC: public owner, MA: Ministry of agriculture

10. Government roles in VA project • Planning and tasks designation：MII makes the long term goals and annual plans , and distribute annual tasks to carriers.MII provincial branches PCB in charge of coordinating, supervising and examining. • Processingmanagement: Every quarter every TA assess every carrier achievements in its province and report to MII. MII make statistics analysis of whole nation and report to Central government, provincial governments, all carriers and main public medias. • Privilege policies : • Spectrum and numbering used in VA could be an exception of national uniform plan, flexible in choose new techs • Tariff：carriers have the discretion of setting price ,only requirement is not higher than cities.Compared to restrict price regulation in cities (dominant carrier floor price, non-discrimination terminate fee between different carriers)

11. Investment • From 2004 to 2008, Every Carrier invest VA project and fulfill the tasks by itself. They totally 460Billion RMB (99% used for equipments and engineering layout). • Since 2006, Treasury department of Chinese Central government provide 3.5 to 4 billion RMB to subsidy 6 carriers for their deficits in VA project installation and maintenance.-----Carriers need put in its own money. • Provincial governments provide some privilege policies in Tax, power supply and land usage .Some provinces have appropriate funds for VA. -----Provincial governments try to play more part. • Long term---Establish Universal Service Fund

12. How to designate tasks? • Principal：the more strength, the more assignment. • Calculated by a study group consists of officers from MII, SASAC,NDRC and MA, representatives of six carriers, and neutral scholars, in terms of annual revenue, subscribers market share, etc. • Distribution: • Segment the 31provinces into six designate areas.分片包干——指定区域 • Every carrier in charge of making the villages and towns in his designated area accessible and affordable to telephone. According MII Five-year-plan, accomplish designated tasks (the numbers of unconnected villages) in set timeframe and in designated provinces. Each carrier’ task is consistent but might be adjusted at the beginning of every year after a intensive discussion and bargain

13. Technology and Service selection -Technology: low cost, wide coverage; fool-proof and robust; Domestic equipments preference. - Network: Achieve VA goals by extending its existing networks Fiber/copper loop,; GSM& CDMA, FWA SCDMA (China innovated system oriented to rural), VSAT, Globalstar and AceS -Cheap and practical user terminal equipments, e.g, Rural information sets, Economic handsets, Easy Computers -Service, 119, e-governments, agricultural produce related information service. Wireless Access local Exchange Relay/Trunk （FSTN/Cellular)（wireless/wire line) base station SCDMA System Fixed Wireless Terminal SCDMA-400M: for villages in mountains and islands . SCDMA-1800M: for towns in plains McWiLL: Broadband Wireless access to Internet.

14. Why non/little-subsidy UF policy works in China • Undertakers are all state-owned common carriers. • 3State-owned enterprises have special roles in china economy system and relationship with governments. There are 3 basic Service providers (common carriers, state-owned), 1844 national value-added service providers( 90% are private).20000 local VAS providers. • Political pressure • High rank Managers are nominated by Central Government. Their Assessment includes both economics achievements and political corrects. • Social pressure • State-owned establish from scratch by public capitals, the public ever sacrificed personal benefits for their growth; • Generally have high reputation in Chinese, the public expect them more social accountabilities than ordinary enterprises. • Long term profits attraction enable carriers leverage between government and private shareholders • New subscribers more and more come from rural market (accounts for 30%).Compared to city market, less competition. • Convinced by China Mobile’s successes in rural markets.

15. Relationship of stated-own business and government There are about 100 state-owned business now. In future the number will drop to 50 or so by privatization and consolidation. They are under the supervision of three different departments of Chinese central government. Their joint aggressive pushes made non-subsidy universal services in China possible. SASAC state-owned Assets Supervision and administration Commission NDRC National Development and Reform Commission, realizes public ownership enforce antitrust related issues Industry regulator the business plays in, (for telecommunications carriers, is MIIT) policy conflicts of different departments might give carriers excuses for elusive behaviors Industry development and market regulation

16. Challenge—non-subsidy policy sustainable? How much state ownership should and could in common carriers’ operation? Unclear Central –local government jurisdictions Lack of systematic institution arrangements

17. Since 1990s Economy restructure by Privatization, Globalization, Liberalization China Economy System Evolution 1949-1979 Planned Economy Public sector95% • state-owned and -run enterprises (basic and key industry) • Collective owned and run enterprises at different administrative levels ( province, city, county, town, village) Private sector • Small self-employed business • others Separate the ownership and management of public sector • Socialist Market • Economy • 2007 About 40% GDP • public sector • State-owned enterprises • Partially privatization • Collective enterprises • totally or partially • Privatization 90% • Private companies • play an important role. Privatize state-owned and collective enterprise Stimulus policy for private sector growth (2nD FDI country) set public assets supervision system and market regulation system

18. Module und Variations_E • Socialist market economy • Market plays fundamental role in resource allocation and price set • Economy shared by diverse forms of capital • Public sector be dominant player in infrastructure and key industries. absolute or relative share holding adopted under different circumstances step by step e find solution by doing Transitional Can go there? How to get there? No one has clear ideas. No emulated path. “Crossing the river by feeling for the stones” (Deng xiaoping)

19. Transitional institutional environments Present: ambiguous governments’ roles; legislation behind practice; inconsistent rules. Someday? in future: Systematic institutional arrangements • Hard to reach national consensus because of heavy controversies; • Corruption, during privatization • Compromise between different benefit groups, domestic need and international pressures • Astonishing changes for 1.3 billion people in 30 years compared to cultural traditions and history burdens of 5000 years • Industrialization • ---50% rural population engages in agricultural produce, 1978 is 80% • Urbanization • 7000m lives in countryside without public utility and social security, unemployment pressure • Globalization • Weak domestic private capital, lack expertise in international trade rules etc. Adjusting and reforming gradually • Transition from lots of temporary departmental rules to formal law ; • A lot of coordination case by case among different level governments, and government-enterprises.

20. Central and local government jurisdiction in VAP Two-layer regulation former present • Central level (MII) • Infrastructure &basic service; • inter-province VAS; • Common carriers • Local level (PCB) • PCBs are Provincial branches of MII, • independent of local government • Local VAS (non-facility information service) • Local VAS providers • Central level (MIIT) • Basic service and inter-province VAS by MIIT • Carriers supervised by NDRC+SASAC+MIIT • Local level ( PCB) • PCBs become an department of provincial • governments they located; • PCB jurisdiction keep unchanged UFO: VAP +Internet access +Rural information service UFO: VAP—Basic telephone Local governments try to play a part in local ICT service development. But they have not enough influence in carriers and many provinces have to rely on central-level investment on UFO.