Authored by Dr. Zhan Hao and Dr. Annie Xue
China has seen another far-reaching step towards deregulating the strictly regulated telecommunication sector.
On May 9, 2014, the Ministry of Industry and Information Technology of the P.R.C. (MIIT) and the National Development and Reform Commission (NDRC) jointly issued a notice announcing liberalizing pricing of the telecommunication services (Notice).  This policy has come into force on May 10, 2014.
The price liberalization in the telecommunication sector comes when the ruling party vows to comprehensively deepen the reform and looks to the market as the essential price-setting mechanism. And the Notice is an execution of the State Council’s Decision on Removing and Delegating Some Items Requiring Administrative Approval,  which was promulgated on January 28, 2014.
Following moves relaxing market entry in the telecommunication industry, deregulating pricing is not a stand-alone policy.
On January 29, 2014, MIIT approved China’s second batch of virtual carriers which include 18 companies with no government background. The first batch of 11 private virtual operators received their licenses from MIIT on December 26, 2013. 
These market mavericks are allowed to rebrand and resell mobile communication services sourced from the three giant state-owned telecom companies, and thereby enter into the mobile communication service market. Mobile communication service is a basic telecommunication service, which was rigorously regulated and was provided by the SOEs only. 
Thanks to the new policy, China’s telecommunication titans, China Mobile, China Telecom, and China Unicom, are now allowed to set up, in response to customers’ demands, their own price structures, price standards, and billing systems, for all telecommunication services, including basic telecommunication services such as local and long-distance fix-line and mobile calls, roaming services, text messaging, and data service.
Nonetheless, the deregulation should by no means be interpreted as the absence of government oversight. According to Article 2 of the Notice, when it comes to telecommunication charges with nation-wide or cross-province effects, the carriers shall make pre-execution report to MIIT and NDRC; all other telecommunication charges shall be reported to telecommunication bureaus and price administrations at provincial levels before being executed.
Prior to the price liberalization, the price of basic telecommunication services was highly regulated by the government.
Article 24 of the Telecommunications Regulations of the P.R.C. provides that:
“Telecom charges are categorized into the price regulated by the market, the price guided by the government, and the price fixed by the government. Charges for basic telecom services shall be fixed by the government, guided by the government, or regulated by the market. Charges for value-added telecom services shall be regulated by the market or guided by the government.
Charges for telecom services for which there is sufficient competition in the market shall be decided by the market…”
The Notice on Further Strengthening Telecommunication Charges jointly issued by the State Development Planning Commission (SDPC, now NDRC) and the Ministry of Posts and Telecommunications (MPT, now MIIT), the Notice on Telecommunication Charges Regulated by Provincial Telecommunication Bureau and Provincial Price Administrations jointly issued by SDPC and Ministry of Information Industry (MII, now MIIT), and the Notice on the Tentative Rules on Telecommunication Charges Approval and Register Process jointly issued by SDPC and MII, rendered the institutional framework for the government, rather than market-driven pricing mechanism in the telecommunication sector of China. The three rules have become invalid after the Notice came into effect.
Drawing on the ideas of the foregoing Article 24, the price liberalization can be interpreted as there has been sufficient competition in the telecommunication market including the basic telecommunication service market in China, therefore, the price shall be decided by market competition. However, it remains doubtful whether this judgment is correct in consideration that market entry has not been fully liberalized. For instance, the fixed-line telecommunication service is still dominated by the SOEs.
Impact on Competitions
Curb abusive behaviors
The national champions have long been criticized, and more recently legally challenged for abusing their dominant market positions.
A Beijing-based lawyer Zhou Ze filied a lawsuit in 2008 against China Mobile for its abusing market dominance by attaching unreasonable conditions and exercising discriminatory treatment.  Another Beijing-based lawyer Li Fangping charged China Netcom (currently renamed as China Unicom after being merged with China Unicom) in 2008 with abuse of market power through discriminatory treatment.  More recently, NDRC launched the milestone administrative investigations on China Telecom and China Unicom in 2011, for suspected exclusion and deterrence of competitors or potential competitors through charging excessively high access and settlement fees for network interconnections. For the time being, the case is still pending. 
Responding to the criticisms, Article 2 of the Notice provides that with respect to the basic telecommunication services, such as fix-line and mobile voice services, text messaging, and broadband, the carriers shall provide single service plans in addition to package plans which bundle a couple of the said services together. This will help avoid anti-competitive tying.
Moreover, Article 2 also requires the carriers within a given business zone to exercise the same treatment to the customers of the same kind. This requirement is intended to curb discrimination.
As far as the price competition is concerned, some commentators predict that with the regulation being loosened, China’s telecommunication sector has come to a complete competition phase, and a price war is unavoidable.  The profusion of the promotion plans of the emerging virtual operators seems to be reflecting this tendency. 
However, others believe that given years of fierce competition between the state-owned telecommunication companies, prices have already reached a record low. This leaves minimal room for significant price cut post-liberalization. With this being said, the Notice may not be exciting news to the virtual carriers, because the traditional operators still own a vast majority of the resources, and accordingly gain the upper hand of competition. The market mavericks will have to strive to grab market shares through non-price competitions, like branding, content, service and channels.
See “Virtual Operators to Disrupt Telecom Industry”, available at http://english.caijing.com.cn/2014-01-28/113873032.html.
For detailed discussions of the restructuring of the telecommunications industry, see Grace Li, Can the PRC’s New Anti-Monopoly Law Stop Monopolistic Activities: Let the PRC’s Telecommunications Industry Tell You the Answer, 33 TELECOMM. POL’Y 360, 361–62 (2009).
See news report in Chinese at http://finance.jrj.com.cn/2009/10/2803056343339.shtml.
see news report in Chinese at http://ip.people.com.cn/GB/9625066.html.
See news report in Chinese at http://www.legalweekly.cn/index.php/Index/article/id/4613.
See news report in Chinese http://epaper.xkb.com.cn/view/928775.
See news report in Chinese http://news.xinhuanet.com/info/2014-05/16/c_133338144.htm.