Conference Program

Abstract

ICT development has been found by numerous studies to have a positive impact on, or a positive correlation with, economic growth. The “digital divide,” which hinders economic growth and social development, has drawn increasing attention from both policy makers and the general public. Initiatives have been taken by various organizations and governments to bridge the gap between the information-rich and information-poor.

In China, historically, universal service obligations were assigned to China Telecom, the leading operator, and were funded by its internal cross-subsidy from high-profit areas or businesses. Before 1998, rural areas witnessed a period of rapid growth, especially from 1990 to 1997. However, in 1998, the introduction of competition, the removal of an initial installation charge, which was an important source of funding for new infrastructure, and the divestiture of the lucrative cellular business ended the cross-subsidization. China Telecom was frustrated by the huge loss incurred by providing universal service by itself. As a result, China Telecom slowed down, if not stopped, investing in rural areas. In line with the Party’s ambition to build a harmonious society, the MII announced a project called “Telephone Service in Each Village Project” in 2004. The MII planned to connect 95 percent of all administrative villages by the end of 2005. Since there is no explicit universal service funding mechanism, the MII distributed the tasks among the big six state-owned carriers based on their revenue and geographical locations of their networks.

On the surface, the “Telephone Service in Each Village Project” has been very successful so far. Tens of thousands of rural villages that had never seen telephones before are now connected to the outside world. Like any project sponsored by the Party, this project is imbued with political significance. As a result, those carriers have shown little resistance to this project despite the fact that there are no incentives or cost recovery mechanisms. In China’s history, this type of Party-led campaign has proved itself to be very effective. Without exception, no one would doubt that the “Telephone Service in Each Village Project” will finish on time.

However, at issue is whether China’s current model is sustainable in the long term. In this paper, the authors use a major Chinese telecommunications carrier’s universal service program as a case to present an in-depth analysis of the current model. The financial and technological challenges are discussed. Issues, such as usage, maintenance, etc. which go beyond the infrastructure, are also addressed.

One conclusion we draw is that the current model is not sustainable in the long term. Although China’s telecommunications carriers are all SOEs, they are also listed on foreign and domestic stock markets. The mixed ownership requires carriers to be responsible not only to the government, but also to investors. The nature of the business culture featuring entrepreneurship and professionalism is now in direct conflict with the Party’s political interests. In addition, since China has opened its domestic telecommunications market in fulfillment of its WTO commitment, the Chinese government will no longer have complete control of telecommunications carriers. Consequently, the effectiveness of the government-led political campaign will diminish gradually. We argue that, in the long term, a market-oriented and comprehensive universal service mechanism, which goes beyond the infrastructure, should be set up to ensure sustainability of universal service with an eye to the future development of telecommunications industry.