The antitrust division of China's National Development and Reform Commission (NDRC) has confirmed that it is investigating China Telecom (NYSE: CHA; 0728.HK) and China Unicom (NYSE: CHU; 0762.HK; 600050.SH) for monopolistic practices in China's broadband market. The two telecom operators may face penalties in the billions of RMB.
Li Qing, head of the NRDC's price monitoring and antitrust division, told CCTV that the division launched an investigation in H1 2011 after receiving complaints that the two operators held monopoly control over national broadband pricing. The investigation seeks to determine whether China Telecom and Unicom are preventing other operators from entering the market by levying high prices on interconnection fees between their own networks and any outside network (including one another's networks). The two operators hold over two-thirds of China's internet access market. If found to be exercising monopoly control, the two operators could face fines equal to 1-10% of annual revenue from internet access services. China Telecom's internet access revenues average RMB 50 bln per year, while China Unicom sees nearly RMB 30 bln.
According to statistics from China's Ministry of Industry and Information Technology (MIIT), China Telecom and China Unicom have 261.5 GB of direct interconnections. For the first nine months of 2011, latency between the two operators ranged from 87.7 to 131.3 ms, while packet loss rates between their networks were between 0.2% to 1.9%, exceeding MIIT's Provisional Regulations on Internet Backbone Connection Services, which require that latency and packet loss not exceed 85 ms and 1%, respectively, meaning that China Telecom and China Unicom have not achieved genuine interconnectivity.
Editor's Note: For more background on this topic, please see "Rumor: China Telecom Faces Antitrust Investigation" MD 9/19/11 issue.