Road to Great Power in Telecom

Wang Xudong, Minister of the Ministry of Information Industry (MII) of China, pointed out in the MII Work Report of 2004 that China would lose no time to promote the reform and development of Information Industry, and strive toward a great power in electronics and telecommunications.
Then, what is a great power in telecom? What criteria can be used to define it? Is there any successful experience for China to use for reference?  How will China carry out the strategy of becomming "a great power in telecom"?

1 Definition of Great Power  in Telecom
A great power in telecom is a country with powerful comprehensive competence in the telecom industry. It takes a leading position and plays an irreplaceable role in the global telecom market. These can be determined by a series of industrial and market indexes that can be quantified and mutually compared between countries at the same point of time.

Preliminary studies show that a telecom power should be outstanding in three indexes:
  (1) Scale: it includes the industrial production scale on the macroscopic level, the number of users on the middle-scopic level and the size of enterprises on the microscopic level, namely, revenues, investments, assets and the number of users.
  (2) Efficiency: it also refers to macroscopic, middle-scopic and microscopic levels. It includes utilization efficiency of telecom resources, competitive efficiency of the telecom market and operation efficiency of telecom enterprises.
  (3) Revenue: it is mainly reflected on the middle-scopic and microscopic levels and includes capital input-output ratio of the whole telecom industry, input-output ratio of the human resource, per capita production of leading telecom enterprises, and rate of returns on asset and capital.
It must be noted that some factors, which can´t be quantitatively measured and calculated, also have influences on the comprehensive competence of a nation´s telecom industry.
There are at least two factors that cannot be neglected: the legal system and the industrial innovative capability. The two factors impose mutual influence on each other. A stable and perfect legal system offers a good environment for telecom market operation and industrial development. Continuous innovation of technology, application and management is a lasting force to push the industry forward.
Based on the above-mentioned basic standards, a great power in telecom should possess the following qualifications:

• Having a group of large-scale enterprises
• Standing in the world´s top rank in terms of resource utilization and market operation efficiency
• Standing in the world´s top rank in terms of macroeconomic and microeconomic returns
• Having a perfect legal system
• Leading in innovation and having fruitful creative achievements
  

A telecom power is not an abstract concept. It is supported and guaranteed by a powerful market, powerful enterprises and a powerful government.
A powerful market means full and effective competition, smooth operation, balanced development and continuous innovation.

Powerful enterprises mean that telecom enterprises have flexible mechanisms, scientific management systems, high efficiency and considerable sizes.
A powerful government refers to a government that provides a favorable environment, and offers a forceful and close supervision on the telecom industry.
Then, how far is China from a great power in telecom?
In 2003, China´s telecom industry went on with a stable growth. Demand expansion and value increase made it outshine others in the world. In 2003, the number of telephone users all over China broke through 500 million. The number of mobile phone users exceeded that of fixed telephone users, and both were ranked the first in the world. The number of Internet users (not including mobile Internet users) exceeded 80 million, ranking the second in the world. Telecom revenues amounted to RMB 462 billion and investment in fixed assets to RMB 220 billion.

These figures show that China has become an important country in the global telecom market. It has become No. 1 in the world concerning its public communication network capacity and the number of subscribers. It is estimated that the picture will not be changed in the next 10 years or more.
In addition to network capacity and the number of users, other facts also indicate that China has already possessed some conditions of being a telecom giant:
  (1) China has preliminarily established an integrated telecom industrial system, in which R&D, manufacturing, integrating, operation and service sectors are closely chained.
  (2) Telecom networks are equipped with the most advanced technologies and provide first-class services.
  (3) China is the largest potential market of telecom equipment, operation and information services in the world.
  (4) In China there are several giant telecom operators with tremendous assets, rich client resources, enormous service revenues, stable profit-making capability and certain international competence. Two telecom companies are among Fortune 500, and two mobile telecom operators have respectively become No. 1 and No. 3 GSM operators in the world.
  (5) Rich services and multi-level service platforms can fully satisfy users´ diversified demands.
  (6) Service traffic (including voice and data traffic) in the global telecom market is gradually transferring to Asia and the Pacific Region.
  (7) Chinese telecom operators have become a highlight on the global capital market, attracting a large amount of capital worldwide.
  (8) Since China´s entry into WTO, international telecom giants have speeded up their paces into the Chinese telecom market, establishing R&D centers, factories, and sales and service offices in China one after another.

However, the Chinese telecom industry is still lagging behind the developed countries in terms of overall quality and nuclear competitiveness.
 If it can be said that the high-speed growth of Chinese telecom industry in the past 10 years has primarily achieved the goal of becoming a big market of telecom, the basic task of the telecom industry in the future is to transform a big market into a telecom power via the deepened telecom reform and further optimization of resource allocation and competitive patterns.

2 Experiences from Telecom Giants
Basic characteristics of the telecom industry are network correlativity and the large scale of industrial economy. Therefore, in the global telecom market, a big market is the necessary condition for making a country a great power in telecom. A big telecom market can be classified into two categories: one is with a large-scale telecom market; the other is with popular telecom service applications.
Generally speaking, a country with a big telecom market has enormous market capacity and great growth potential, but the penetration rate of telecom services is not necessarily high. China and India are the typical cases, although the penetration rate in China is far ahead of that in India.
A country with popular telecom service applications usually has high penetration rate of services but without a huge market potential. The European Union, South Korea and Singapore belong to this category.

According to the classification of a big telecom market, China is a country with a large-scale market; the US and Japan belong to countries with both large-scale markets and popular service applications; Germany and South Korea are countries with popular service applications. The US, Japan and Germany have basically completed the transition from a country with a big telecom market to a telecom power. South Korea has preliminarily completed the transition. However, China is just at the initial stage.

2.1 USA: Powerful Enterprises Bring Along Powerful Country
In 2003, 24 telecom operators were listed on the Fortune Top 500, among which eight operators were from the US. The telecom service incomes of these eight operators accounted for 35.6% of the global telecom market. In addition, half of the six equipment providers listed on Top 500 were from the US. Their sales were 52.2% of the total of the six enterprises on the list.

The guidance of government and the innovative mechanism of enterprises contribute to the above-mentioned outstanding achievements.
  (1) Governmental Guidance
First, in order to make full use of its information advantages and maintain a leading position in the global information industry, the US government makes a clear development goal for its telecom industry, i.e. the NII Plan. It also promotes the formation of a new value chain of information industry based on the Internet and the opening-up of world telecom markets to build up fair and transparent competitive environment, aiming at creating favorite conditions for the US enterprises to enter foreign telecom markets.
Second, the enforcement of government policy and the improvement of telecom-associated legal system and industrial supervision system create an appropriate environment for the development of the telecom industry.
Third, the government gives great support to R&D of patent technologies, for example, setting up a R&D fund for Next Generation Internet and providing preferential taxes and credit support for telecom R&D.
Last, the government plays multiple roles in fostering the information and telecom markets and promoting the industrial development.
  (2) Enterprise Efforts
Telecom enterprises are active in R&D of new technologies to sharpen their competitive edges. Telecom equipment manufacturers in the US usually invest about 15% of their turnovers into R&D. Enormous investment has gained remarkable results. Taking 3G patents as an example, US companies hold half of the patents for CDMA2000 standards, 9% for WCDMA standards and 4% for TD-SCDMA standards.
The US experience can be summarized as: market capacity is the base; economic growth is the guarantee; enterprises´ participation is the key.
A government should play an important role, acting as an environmental builder and a market foster. Innovative ability needs the guarantee of good mechanisms and the support of large funds. Both operation and manufacturing sectors of the telecom industry must be harmoniously developed. Since powerful manufacturing enterprises are the precondition for a strong and prosperous industry, telecom enterprises should have efficient and flexible market operation mechanisms.
As a whole, the basic characteristic of the US experience is that powerful enterprises bring along a telecom power.

2.2 Germany: Government and Enterprises Interact to Make Great Power in Telecom
The situation of German telecom industry in 1992 was very similar to the situation now in China: a big market but not powerful.
  At that time, German telecom industry shared about 10% of the global market, but its policy environment was unsatisfactory and its enterprise competence was weak. Then the German government firmly promoted a system reform.
  Germany Telecom, a leading local operator, was reformed from a state organization into a state-owned enterprise in July 1989, followed by a change into a shareholding company in January 1995. In November 1996, Germany Telecom completed the reconstruction of its shareholding system, and got listed on the stock market. After listed, it implemented a further reform focusing on users´ demands and made full use of the capital market to raise development funds for activities such as license purchases, service development and capital merge. Being aware of the value of a pan-European network, it implemented overseas expansion plans, marching towards a globally leading telecom company.
  Accordingly, German Telecom advanced from No. 32 of Top 1000 Most Valuable Companies of Business Week in 1998 to No. 23 in 1999, and leaped to No. 16 in 2000.
  There are two reasons for Germany to become a telecom power. One is that the government took actions first, i.e. the reform of the industrial system and creation of a favorable environment. The other is the enterprise reshuffle and reconstruction, and internationalized business.
  The basic characteristic of the Germany experience is the interaction of the government and enterprises.

2.3 Japan and South Korea: Coordinated Development Under Guidance of
      Governmental Strategies
Japan and South Korea have some similar experiences of becoming a telecom power.
First, both have large domestic markets that support quick growth of the telecom industry.
Second, they have powerful telecom industrial chains, and rich experience in equipment manufacturing, telecom operation and information services.
  Third, they have fostered leading manufacturing enterprises and operators, such as Japan´s NEC and NTT, and South Korea´s Samsung and SK.
  Last, government departments have played an important role in system construction, enterprise support and market cultivation.
However, the two countries have different ways to promote development of information industry.
Main measures the South Korean government has taken include making plans and setting up related institutions, creating good environments, improving national productivity through the application of information knowledge, building a secured information society by information protection, and funding for telecom technology research.
  The Japanese government has different ideas. It took a catch-up-with-and-surpass development strategy from 1960´s to 1970´s, followed by a self-development strategy after 1980´s. At the beginning of 1990´s, a series of policies to support the information industry were made. Japan proposed a strategy of e-Japan in January 2001 and a framework of building a new IT society in January 2003.
  It can be concluded that the Japanese and South Korean governments guide the development of telecom industry with macroscopic strategies and put their emphases especially on the coordinated development of telecom operation and manufacturing industries.
  Therefore, their experience can be summarized as coordinated development under the guidance of governmental strategies.

3 China´s Road to Great Power in Telecom
The Chinese telecom industry is experiencing the transition from a large-scale market to a giant with powerful telecom services and applications. Learning from the successful experiences of Japan, South Korea and Germany, China may find a proper solution to problems existing in the development of its telecom industry. The solution can be defined as predetermined strategies, governmental guidance and coordination between enterprises.
  (1) Predetermined Strategies
  China should make relevant development strategies at the state and industrial levels, making clear long-term and middle-term goals.
  (2) Governmental Guidance
  It is clear that the government should take chief responsibilities in fostering comprehensive competence of the telecom industry and promoting its international position. It is well accepted that governments of market-oriented countries can play active roles in guiding social resource allocation and industrial development. China is expected to do so.
    (3) Coordination between Enterprises

The development of the telecom industry needs cooperation, competition and joint efforts of all related parties. It includes mutual promotion of upper and lower sectors on the industrial chain. The coordinated development of telecom operation and manufacturing industries is most important. It refers not only to the cooperation and competition of local companies, but also to the competition between domestic and foreign enterprises. With the market globalization, China should rely on its largest telecom market in the world, make full use of capitals and enterprise resources to enhance the comprehensive competence of its telecom industry.
Practically, the strategy of  "becoming a great power in telecom" can be implemented in the following three phases:
  (1) Preparation Phase (Year 2004-2005)
  The main tasks of this phase include:

• Expanding the scale of the telecom market
• Increasing service penetration ratio and reducing development gaps between different areas
• Strengthening telecom reform
• Reconstructing the market competition system to create a fair competition environment
• Steadily absorbing foreign investment and promoting international businesses
  (2) Demonstration Phase (Year 2006-2007)
  The main tasks of the phase are as follows:
• Making breakthroughs in new technologies and new services
• Setting up demonstrative projects
• Supporting coordinated development of operators and manufacturers
• Accelerating the internationalization of domestic telecom enterprises
  (3) Implementation and Promotion Phase (Year 2008 and beyond)
  The characteristics of the phase include:
• A legal environment is basically shaped.
• A creative mechanism is set up, and the innovation capability is greatly improved.
• An orderly market competition environment is set up.
• Chinese multinational companies play important roles both in local and international markets.
• The telecom industry has a strong influence on international telecom standards, service markets and capital markets.
• The industrial input-output and economic returns of enterprises stand in the world´s top rank.
  

  "Becoming a great power in electronics and telecommunications is China´s strategic goal, and it is a long-term and gradual process. With scientific attitudes and best efforts, China is able to reach the goal as soon as possible," Minister Wang Xudong emphasized on the working conference of MII.