China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [62]
Despite the State Council’s approval, however, the existing monopoly, MPT’s China Telecom, tried everything in its power to prevent China Unicom from becoming a true competitor. Wu Jichuan, the minister of MPT, reportedly said, “I want not only to strangle Unicom, but also to bury it deep.”32 Because MPT was both an operator of the existing telecom monopoly and the regulator of the telecom sector, it had ample means to undermine its fledgling rival. Minister Wu insisted, “Unicom’s entry into any market must be approved by MPT” because MPT had the power to interpret the State Council’s December 1993 directive authorizing the formation of China Unicom. Consequently, MPT ruled that Unicom did not have permission to operate long-distance and local fixed-line services. MPT abused its regulatory power to delay Unicom’s entry- into certain markets. In some cases, Unicom had to wait as long as two years before MPT approved its applications. One was Unicom’s application for its own GSM cell phone network. Initially, MPT was not interested in building a GSM network for itself. However, it changed its mind after Unicom had built its own GSM network. To prevent Unicom from gaining a competitive advantage, MPT effectively rendered useless Unicom’s GSM by denying it access to the MPT’s vast fixed-line network. Only after MPT’s own GSM became operational did the ministry grant access to Unicom’s GSM network. In addition, MPT’s China Telecom used predatory pricing and cross-subsidization to undercut Unicom and charged Unicom excessive fees for access to its fixed-line networks.33
Such anticompetitive practices stunted Unicom’s initial growth. Three years after Unicom was formed, it could not get into long-distance or local markets, in spite of its existing networks. Even its business in the cell phone market was severely curtailed. Although it had built its own wireless networks in twenty cities, it was able to operate its networks in only four (Shanghai, Beijing, Tianjin, and Guangzhou) because MPT prevented Unicom from gaining access to its local networks. At the end of 1995, Unicom had fewer than 50,000 wireless customers, though its networks had a capacity to serve 700,000. Its market share of the mobile telephone market was a paltry 1.38 percent.34 At the end of 1997, Unicom’s wireless service still had only 200,000 subscribers, about 2 percent of China Telecom’s customer base.35 And in 1999, China Unicom’s share in the wireless market was only 6 percent, compared with China Mobile’s 94 percent. In the paging market, China Telecom controlled 67 percent of the market share, and China Unicom had only 3 percent.36
The experience of China Unicom epitomizes the Chinese government’s halting efforts to open the telecom service sector. On the surface, it appears that the government tried to break up China Telecom’s monopoly through a series of reorganizational reforms of the industry. But in reality, the sector continued to be dominated by the monopoly firms formerly affiliated with MPT, which itself became the Ministry of Information Industry, or MII, in 1998. In 1999, China Telecom, which nominally was separated from MII in 1998 and became an independent SOE, reorganized itself into four entities: China Telecom (fixed-line service), China