It isn’t just Zhu who is fed up with the performance of China Telecom, which answers to Wu Jichuan, the powerful head of the Ministry of Information Industry (MII). The state-run press has strongly criticized the monopoly for poor service, costly installation fees and expensive calling rates. Last fall, 50 prominent academics sent a stinging letter to Zhu–complaining not about political persecution, but about outrageous phone bills, which are making it impossible for them to do research over the Internet. At a public forum in Beijing last December, a collection of paging companies, Internet- service companies and consumer groups likewise lashed out at China Telecom. “You’ve increased rates in our village so much we can’t afford to make phone calls!” went one complaint.
Foreign telecom companies would love to try to improve the situation. Fewer than 10 percent of China’s 1.2 billion people currently have access to a phone, but demand for communications services is exploding. “You don’t want to miss this party,” says Bill Murphy of Newbridge Networks, a Canadian telecommunication supplier that does business in China. To date, however, only foreign equipment suppliers like Newbridge have been able to gain a foothold in China. Service operators like MCI-WorldCom, Sprint and Vodaphone have gotten only token access through complicated joint ventures. Those deals–more than $1 billion worth–have been done with China Unicom. That company was created in 1994 by the Electronics and Railroad ministries, with the blessing of reformers like Zhu, to compete with China Telecom. But with the wily Wu blocking access to China Telecom’s networks, Unicom has accomplished little. Last year a consolidation of ministries brought both Unicom and Telecom under the sway of the newly created MII–where Wu captured the top job.
Wu, 62, was chief of China’s old Ministry of Posts and Telecommunications before taking over the new agency. And he has accomplished a lot as China’s communications kingpin. In 1991 China had only 1 million telephone lines installed in the whole country. By 1998 there were 110 million. For the last six years China has added the equivalent of a regional Bell company each year. “People may not like the guy,” says Duncan Clark of Beijing-based BDA Consultants, “but nobody can argue that he’s overseen the largest telecom expansion in history.” That record gives Beijing’s conservatives a certain amount of credibility when they argue that China can and should go it alone in telecom, rather than run the national-security risk of allowing foreigners to control big chunks of their networks.
Wu’s prominence is also what makes the market-opening concessions Zhu offered in Washington so startling. According to the U.S. Office of the Trade Representative, China is offering to allow foreign companies to own up to 49 percent of joint-venture operating networks. Right now China forbids direct-equity stakes. The liberalization measures would apply first to the Beijing to Shanghai to Guangzhou corridor, then be gradually rolled out across the country. In addition China has offered to lower prices and enhance access by competing firms to China Telecom’s networks. Most significantly, China will allow outsiders majority control of potentially lucrative paging, mobile-phone and business data-transmission services in four to six years. “China’s commitments are dramatic,” says Eric Nelson, vice president of international affairs for the U.S. Telecommunications Industry Association.
Maybe a little too dramatic. Zhu has been strongly criticized at home for promising America too much. And after talks last week in Europe, there were suggestions that China backed away from some of Zhu’s commitments. Still, the prime minister seems to be besting Wu in their long-running struggle–not just with regard to foreign participation, but on the home front, too. Under mounting pressure, the MII announced massive phone-rate reductions on March 1. Two weeks later, at a press conference at the National People’s Congress, Zhu demanded even deeper cuts. Wu, who was watching a broadcast of the press conference, stalked out of a viewing room in protest. Beijing recently announced that China Telecom would be chopped into four separate companies–fixed phone lines, mobile communications, paging services and satellite. This time it was Wu, seemingly brought to heel, who delivered the news. “The breaking up of China Telecom is aimed at smashing the telecommunications monopoly and introducing competition to set up a fair and orderly market,” he said. Was he sincere? Last week it was reported that he had resigned as head of the Information Ministry. There has been no official announcement, however, and MII officials vehemently denied the reports. A Chinese telecom analyst says Wu “is like the little Dutch boy with his finger in the dike, holding back the forces of reform.” That’s one way one of looking at him. Another is as a figure who has played an important role in a period of profound change–and then overstayed his usefulness.
For years China has lurched one way, then another, on telecom reform. Now it’s clear that it can’t move forward with a state monopoly in place. With or without a WTO deal, China Telecom will be broken up. Unicom is revving up its engines, and should have a fairer shot this time round. Anil Kripalani, a vice president of Qualcomm, a U.S. maker of chips for wireless networks, says Unicom plans to sign up 40 million cellular customers in four years. (It has 1 million subscribers now.) China’s precise intentions will become clearer over the next two weeks, but the general trend is apparent. “My impression is that China is opening,” says Kripalani. It’s an impression shared by Washington, Zhu Rongji–and maybe even Wu Jichuan.
