When competition law meets telecom regulation: the Chinese context

https://doi.org/10.1016/j.clsr.2015.07.007Get rights and content

Abstract

The liberalized telecom sector propagates a dynamic ecosystem mixed prominently with three forces: the market mechanism, sector-specific regulation and competition rules. While the tension between the market force and sector-specific regulation has been well studied, the conflicts between sector-specific regulation and competition rules have attracted less attention in particular in China. The 2012 China Telecom/China Unicom case indicates that such conflicts are not moot issues any more. This leads to a question whether it is better to let the two instruments compete or complement. The comparative study on the different practices of the EU and the US suggests that China may better apply the US case-by-case approach, i.e. to evaluate whether antitrust intervention can bring added value to effective competition. Subsequently, a substantive analysis based on the US approach arrives at a conclusion that the EU outcome is nonetheless better suited for the Chinese context, namely to establish the supremacy of competition rules over sector-specific regulation and to allow the former to intervene in the latter whenever necessary.

Introduction

The liberalization of the Chinese telecom sector was initiated more or less two decades ago, at the beginning of 1990s. A significant number of reforms on sector-specific regulation (SSR) have been rolled out since then. Previous research focuses substantially on the role of SSR in promoting competition. For example, Gao and Lyytinen evaluated the first telecom reform in 1994–1998, and praised the historic move to start the telecom liberalization in China, though to a limited extent.1 Zhang investigated the second wave of reform starting from 1998 due to the urgency to join the World Trade Organization (WTO), and pinpointed its significance to the further development of Chinese economy.2 Chang et al. examined the regulatory environment for international investors.3 Fu and Mou, after studying the latest reform in 2008, criticized the incompleteness of the current liberalization, such as non-transparent policy-making and the state-monopolized market structure.4

However, less has been so far touched upon the role of another important instrument in the process of liberalization, i.e. competition rules.5 Scholars, such as Li6 and Li,7 even cast doubt on the applicability of the newly adopted competition rules in China to the state-owned telecom monopolies. Nevertheless, a non-deniable fact is that after more than twenty-year development, competition, though far from satisfactory, has emerged in at least part of the telecom sector in China. This firstly gives a possibility for competition rules to engage. Secondly, in 2012 the National Development and Reform Commission (NDRC), a Chinese competition agency, enforced Chinese competition rules against two state-owned telecom incumbents that were at the same time subject to regulatory obligations. This case does not only officially enunciate the involvement of competition rules in the liberalization process, but also raise an interesting issue in relation to the institutional conflicts between competition rules and SSR. Moreover, it implies that behavior of state-owned enterprises (SOEs), even directly governed by SSR, may also infringe competition rules. This results into a dilemma that in order to fulfill the requirement of competition rules regulated operators must necessarily disobey regulatory rules, or vice versa. Consequently, China began to be confronted with the institutional conflicts between the two legal instruments, a challenge already experienced in other jurisdictions, e.g. the European Union (EU) and the United States (US).

This article aims to shed some light on the institutional conflicts between competition rules and SSR within the Chinese context. In order to do so, the next part gives a brief introduction to the regulatory environment as well as the current market situations in China's telecom sector. Subsequently, the third part switches its view to antitrust enforcement in China, and discusses the aforementioned case that exposes intense institutional conflicts between the two legal instruments. Following the concern that the current Chinese legislature is not able to mitigate those conflicts, the fourth part carries out a comparative study on the related practices in the EU and the US. The international practices suggest that the US approach may offer a useful tool to examine the Chinese circumstance. Therefore, the fifth part, in accordance with the US methodology, evaluates whether it is value-added in China to allow competition rules to intervene into regulated matters. The result surprisingly turns out to be consistent with the EU outcome. Finally, the last part concludes with some suggestions.

Section snippets

Telecom regulation

The two-decade long liberalization in Chinese telecom industry has witnessed both progress and compromises. While a substantial number of private operators have entered the sector, a full liberalization is still not achieved until now. Telecom networks, or Category I of basic telecom services (Table 1), have always been controlled solely by the SOEs. The difference from more than twenty years ago is that they are now owned by not one but three SOEs, namely China Telecommunications Corporation

Competition rules

In China competition rules came out much later than the Telecom Regulation. After decade-long discussion, the Anti-monopoly Law (AML) was finally adopted in 2007 and became effective in 2008.30 Similar to competition rules in other jurisdictions, the AML also prohibits anti-competitive agreements (Chapter II), abusing dominant positions (Chapter III), and anti-competitive mergers (Chapter IV). A difference lies

Applying US approach to Chinese context

The US practice maintains three conditions to assess the intervention of competition rules into regulated matters, i.e. (i) whether SSR explicitly excludes the application of competition rules, and if not, (ii) whether SSR is detailed and designed to deter and remedy anti-competitive harm, and (iii) whether the application of competition rules might go against the regulator's plans. In the following, research has been carried out in order to test whether the interference of the AML into SSR can

Conclusions

The liberalization in the telecom industry engenders an intertwined legal environment, part of the industry subject to the market force (hence competition rules) and partly governed by SSR. A balance has to be struck firstly between the market force and SSR, and secondly between competition law and SSR. While the balance between the market force and SSR has been well studied, the second balance so far attracts less attention in particular in the Chinese context. The classical theory presumes

Acknowledgements

The author acknowledges the financial support of the Ministry of Education of the People's Republic of China Project of Humanities and Social Sciences (No.12YJC820037). The author is also sincerely grateful for the reviewer's comments.

References (0)

Cited by (3)

View full text