VoIP in China

There was a report on "VoIP in China" at TMCnet.com and Theregister retailed it yesterday. VoIP technology is a revolution brought by the IP prevalence. It lowers the operation costs of both the carriers and the consumers. See my previous post on "Skype blocked at China", where I expressed my points on the way in China for Skype and other web phones.

In fact, the revenue growth of those two fix line operators (China Telecom and China Netcom) depends on their broad-band internet access and some of the value-added services. But the growth of such two kind of services can not fill the revenue hole by voice revenue decline. Especially when the leading mobile operator – China Mobile claimed a few days ago that they would by far lower their roaming and inbound call price. That's a hard time for CTG and CNC, hurted by the "replacing consumption". The contribution of their PHS products is just to collect money by burning more money.

At 2007, the main four operators will get their own 3G licenses. And the consolidation and upgrade of their BSS/OSS systems will be reaching a milestone to support more multiple-play products. It's a critical point for CTG and CNC, who have huge scale local communication networks. Theoretically they will have a fair competition base.

Currently there are a drastic argument at engadget.com, arose by a post on "China gives VoIP two year sentence". I agree and appreciate the comments from Terence and LG and etc. China never ban Skype, never claim Skype illegal. People can use Skype just as other part of the world. China just doesn't want to grant such a license to permit INTERCONNECT with PSTN. That's the right of a government to decide when and how to grant such licenses, no business with the socialism and politics.

Here is the main points of TMCnet.com:

VoIP In China: We Express Our "Doubtness"

By David Sims
TMCnet Contributing Editor

The Beijing News is reporting — Page 1, no less — that "it is said that a company from southern China obtained the first VoIP service operation license as a pilot."

Telecom carriers and virtual network operators will be able to apply for the license by 2007 when the country will fully open the market, but "experts from China's Ministry of Information Industry, the industry regulator, expressed their doubtness."

It's not specified what they expressed their doubtness about.

Earlier, The Beijing News says, the ministry "approved the fixed-line carrier China Telecom to launch experiments in Shenzhen and Shangrao, two cities in Guangdong and Jiangxi Provinces, and ratified the counterpart China Netcom to present the same business in Changchun and Taian, cities of Jilin and Shandong Provinces."

But the two operators were not willing to do so because "the VoIP service will erode a great deal of profit from the fixed-phone service," according to sources familiar with the matter.

VoIP isn't zooming up the charts in the ol' People's Republic — enter "VoIP in China" on Yahoo! News and get exactly two hits. Yet there are those who are predicting big things in 2007. Well, bigger than what's happening now, anyway.

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2 Responses to VoIP in China

  1. Yes, VoIP has great impact on current PSTN or even mobile business revenue. It’s the trend that’s inevitable. Operators should have well preparation to embrass the new technology. 科技始終來自於人性。

  2. hi2005 says:

    VoIP in China Kaili Kan

    Voice over Internet Protocol (VoIP) has become a focus of great attention in China’s telecom sector over the past year. In most countries around the world, VoIP is viewed as a niche market to be competed for by second, or even third tier operators. However, in China all the top operators, including China Telecom, China Unicom, China Mobile, China Netcom and Jitong Corp are providing this service. Moreover, VoIP has become the fastest growing service in China’s entire telecom industry, with some analysts forecasting it will capture up to 30% of China’s long-distance market this year.

    Such explosive growth is not accidental. Until early last year, China was the only major country in the world still maintaining a monopoly in long-distance services. High tariffs, especially for international calls, have significantly suppressed traffic volume and created public outrage. Private entrepreneurs, as well as powerful state-owned enterprises (SOEs), were aggressively looking for ways to squeeze into this lucrative market, but were always thwarted by China Telecom. Furthermore, even if the regulator (Ministry of Information Industries – MII) wanted to introduce competition into the long-distance market, it was expected that it would take years, if not decades, of debate to overcome the fiercely defensive China Telecom.

    On the other hand, Internet services in China have been a competitive value-added service from day one. By early 1999, technology for carrying voice over the Internet had matured, while underground long-distance operators utilizing this technology began to mushroom throughout the country, “stealing” more and more traffic (and revenue) from China Telecom. In March 1999, a local subsidiary of China Telecom in Fujian Province confiscated the equipment of two brothers and took them to court. China Telecom first won the lawsuit, but the verdict was overturned on appeal by the brothers to a higher court. The reason: at that time there was no regulatory definition of such a service.

    Such an outcome brought great pressure to bear on the MII. In a great hurry, since there was obviously no way to stop such a service, it was decided to officially start VoIP as a new service under ministry control on an experimental basis. Thus, VoIP started with only the top three state-owned operators (China Telecom, China Unicom and Jitong). Such a decision was welcomed by consumers and telecom competitors, while China Telecom tried to limit the growth of VoIP by publishing ads questioning the quality of the service. In addition, China Telecom gave the job of providing VoIP service to its traditional long-distance departments. As a result, its service became the most hard-to-get and worst among the three rivals. However, consumers soon began to realize that not only was VoIP much cheaper, but the quality was better than traditional routes. In less than a year, the number of VoIP operators increased to five, with the addition of China Netcom and China Mobile Group. A year after the VoIP experiment started, the MII designated it as a normal service. China Telecom finally began to seriously look into providing a more decent VoIP service, while it was also forced to lower the pricing of its traditional long-distance services.

    To define IP telephony as a new service was a strategic move of China’s telecom regulator. There was intensive, often heated debate when this decision was made. People who defined it as a new service now jokingly recall this move as a “conspiracy”. Of course we knew VoIP was merely a new technology, instead of a new service, just like digitally switched voice communication is not a new service compared with analog switching. However, by defining VoIP as a new service, we got around all the legal obstacles. Instead of spending over a decade like the United States on debating whether the long-distance market should have competition, China Telecom’s monopoly was effectively broken overnight. A new era thus began without even being noticed.

    However, the implication of China’s VoIP policy goes far beyond breaking China Telecom’s monopoly. Compared with the traditional long-distance service, which establishes a dedicated connection, VoIP transmits voice over the network by using Internet protocol (IP) and packet switching. This format not only significantly increases bandwidth efficiency, but also paves the way for the convergence of voice, video and data, thus widely recognized as the evolutionary direction of the 21st century information highway. The key to this evolution: a “killer application” for IP-based packet switching must be found that is both profitable and has massive volume.

    In most developed countries, since long-distance services have long been under severe competition and have thus become less profitable, hope is now being placed on the rapid increase of data services. However, since China’s economy is still struggling to make the transition from the old Soviet-style management towards a market economy, data services still have a limited volume and their high growth together with handsome profitability seems to be remote.

    Therefore, the explosive growth of VoIP provides a golden opportunity for the evolution of China’s public network. Although the price of the VoIP long-distance service is less than one-third of its traditional counterparts, because of the monopoly-created tariff imbalance, this service is still extremely profitable. Furthermore, China already has over 180 million fixed and mobile telephones, compared with roughly 10 million Internet users. Thus, VoIP naturally becomes China’s “killer application” to lead the evolution towards an IP-based packet-switched public network. For example, it has been reported that China Unicom and China Netcom have both decided to build their entire networks based on IP instead of the traditional circuit-switching technology. Since voice is still the most basic and moneymaking service around the world, it is predicted that China has thus obtained a significant advantage from VoIP. The reason: After leapfrogging over crossbar switching and microwave transmission by going directly into digital and fiber, it is now possible that China will take the lead in the worldwide race towards convergence of voice, video and data because of its VoIP policy.

    Dr. Kaili Kan, Dean – School of Business Management, Beijing University of Posts & Telecommunications (BUPT)

    (CIIC 01/05/2001)

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