China's Broadband Ecosystem Research Presented at the Pacific Telecommunications Council Annual Meeting

1. Chun Liu
Professor
School of Economics and Management
Southwest Jiaotong University, China
Meheroo Jussawalla Research Prize Award

2. Introduction
 There is now strong interest among governments in
promoting the development of a next generation
broadband network, and some 134 national
broadband plans are now in place around the world.
 China is of no exception.
2

3. Literature Review
 Is there a role of the government in broadband development?
 Public policy involvement is worthwhile because it provides a clear and
significant stimulus for broadband penetration (Belloc et al., 2012; Falch,
2007).
 ITU estimates the introduction or adoption of a national broadband plan
was associated with 2.5% higher fixed broadband penetration, and 7.4%
higher mobile broadband penetration on average (The Broadband
Commission for Digital Development, 2013).
 On the other hand, Montolia and Trillas (2013) found that indicators of
national industrial policy were a weakly positive determinant of broadband
deployment and that different measures of centralization were either
irrelevant or had a negative impact on broadband deployment.

4. Literature Review cont.
 How deep should the government involve in broadband development?
 The government can play the role of an “enabler” or a “rule maker” in
broadband development (Picot & Wernick, 2007);
 soft-intervention strategies, medium-intervention strategies and hard-
intervention strategies (Cava-Ferreruela & Alabau-Muñoz, 2006).
 It must be noted that Broadband Forerunners, such as Sweden, Finland,
Japan, Korea and etc., were found to take a proactive interventionist
approach when they started their broadband rollout, which features a
specific mission, achievable goals and policies designed to achieve
success (Eskelinen, Frank, & Hirvonen, 2008; Frieden, 2005; Lau, Kim,
& Atkin, 2005).

5. Literature Review cont.
 What should the government do?
 Generally two types of policy measures: supply-side and
demand-side.
 It has also been found that although both supply-side
and demand-side policies had a positive effect on
broadband diffusion at the initial stage of broadband
take-up, only demand-side policies appeared to generate
a positive and increasing effect when a certain degree of
broadband penetration was reached (Belloc et al., 2012).

6. Development of the Analytical
Framework
 Kim, Kelly and Raja (2013)
conceptualized broadband
as an interconnected,
multilayered ecosystem of
high-capacity
communications networks,
services, applications, and
usage/users.
 Implications: Governments should design various
policies and programs to address different components
of the ecosystem, a holistic approach.

7. Development of the Analytical
Framework cont.
 Stages of Broadband Development
 Existing studies have generally agreed that the effectiveness of government
policy varies across different stages of broadband development;
 Most researchers did not define the term “stage” and often used words, such as
“early” and “later,” to refer to the different levels of broadband development.
 Others segmentations include:
 innovators and early adopters, early majority, and late majority and laggards. (Lin and
Wu, 2013);
 promotion, oversight, and universalization (Kim et al. ,2013) ;
 A three-stage model is also adopted in our analytical framework, namely
startup, expansion, and saturation.

8. Development of the Analytical
Framework cont.
A simple two-dimensional analytical framework, with the
different stages of broadband development represented
by columns and the four components of broadband
ecosystem represented by rows, is proposed.

9. Development of the Analytical
Framework cont.
 Notions of the proposed analytical framework
 Considering the different economic, political, and social
conditions of each country, a one-size-fits-all segmentation
approach according to the numerical penetration rate may
not be appropriate.
 The market structure factor is included in our segmentation.
 Networks, services, applications, and users are hierarchized in
a layered manner, as an analogy to the architecture of the
Internet

10. Development of the Analytical
Framework cont.
 Each box in the grid represents a set of possible policy instruments that
may be adopted to address particular components.
 It is possible that some policy tools have impact across layers.
 For illustration purposes, the color depth in each box represents the
priority of these policy tools. The darker the background color is, the
more important it is to adopt the policy tools in this box.
 Although it is ideal to tackle all four layers, prioritization may provide a
practical guideline for developing countries, which usually have limited
resources available.
 Instead, the purpose is to provide policy makers a parsimonious
analytical tool to evaluate the appropriateness of the available policy
tools in different market conditions.

11. Case of China

12. Early Development: Lack of a
National Strategy and Policy
 The strong determination of the government to make the telecommunications a national
priority, the Chinese ability to execute by administrative decree rather than consensus
building followed by legislative and regulatory reform and the Chinese tendency to
introduce internal competition among government–owned organizations were identified
as the key factors to the early quick diffusion of China’s Internet (dial-up)(Press, Foster,
Wolcott, & McHenry, 2002; Tan, Foster, & Goodman, 1999).
 However, generally speaking, in the 1990s, the Chinese government had “love-hate”
feelings toward the Internet and adopted an individual-policy-for-individual-issue
approach (Xue, 2005).
 The lack of a comprehensive national strategy and policy has caused China to miss a
window of opportunity to leapfrog over the broadband Internet development stages (Xue,
2005). The first generation of broadband service, the Integrated Services Digital Network
(ISDN), was introduced in China in only 1998, almost ten years after it became
commercially available internationally.

13. Broadband Climbing Up the
National Agenda
 In 2001, the term “broadband” was officially written into
Tenth Five-Year Plan (2001-2005) of China and the Key and
Specialized Planning of Tenth Five-Year Informatization
Plan was promulgated (NDRC, 2013).
 Generally speaking, China has chosen market competition,
rather than monopoly, as the rule for Internet service
provision.
 Several rounds of industrial restructuring;
 Joining the WTO;
 Etc.

14. Three Network-Convergence Plan:
the first national broadband plan
 With the advancements made in cable modem
technology an intra-platform competition
became possible between the
telecommunications carriers and the digitalized
cable network operators.
 In 2010, as one of China’s strategic policies in
response to the global financial crisis, the
Chinese government turned the convergence of
telecommunication, television and Internet into
a national strategy called “The Overall Plan for
Convergence,” according to which the Chinese
government aimed to achieve a competitive
converged information industry and an
accompanying clear, scientific and efficient
regulatory regime by 2015

15. Broadband China Plan
 On August 1, 2013, the State
Council officially announced the
Broadband China Plan
(hereinafter referred to as the
Plan), in which quantified goals, a
technology roadmap,
development timetable, key tasks
and specific projects were set,
aiming to build a ubiquitous, fast
and advanced national broadband
network before 2020.

16. Broadband China Plan
 One week after the release of the Plan, the State Council released
another policy guideline entitled "Several Opinions of the
State Council on Promoting Information Consumption to
Expand Domestic Demand” (Guo Fa [2013]. No 32)
(hereinafter referred to as the Opinions), which focused on
boosting domestic information consumption.
 In 2015, the State Council issued the third directive policy on
broadband development, entitled “Guiding Opinions of the
General Office of the State Council on Accelerating the
Construction of High-speed Broadband Networks,
Boosting Internet Speed and Lowering Internet Charges”

17. Three Stages
 Stage 1 Market Startup (in 1990s)
 No National-Level Broadband Policy.
 Stage 2Market Expansion (2010-2015)
 The Overall Plan for Three Network Convergence
 Stage 3 Market Saturation
 The Plan
 The Options on Information Consumption
 The Options on Boosting Internet Speed and Lowering
Internet Charges

18. Shift to upper levels

19. Issues
 Who is going to pay for it?
 Neither the national strategic plans nor the subsequent ministerial
level policies have systematically and explicitly addressed the issue
of the funding mechanism for this ambitious project.
 Because state carriers control almost the entire commercial
broadband backbone and the overwhelming majority of the access
lines, it is primarily their responsibility to execute the government’s
broadband programs.
 The Chinese government also encourages private capital to
participate in the Broadband China Plan.
 The state also encourages lower-level government bodies to invest
in broadband development.

20. Issues cont.
 A facility-based competition?
 Internal restructurings in the telecommunications sector;
 Introduce external players to compete with state carriers;
 In June 2015, the MIIT issued the first three licenses to
private companies to offer broadband access service;
 Another prominent feature of China’s recent broadband
policy is the classification of broadband as a type of public
utility instead of a value-added telecommunications service.

21. Issues cont.
 Regulatory Model (SASAC, MIIT, NDRC)
 China has not established a specialized institutional arrangement
for broadband development;
 Power is distributed among the MIIT, the SARFT, the SASAC and
the NDRC;
 It must be noted that it is not uncommon that the leadership often
organizes a super-ministry working group, usually called a Leading
Group, to address complex inter-ministry issues.
 The Chinese government often takes a pragmatic and flexible
position in dealing with economic affairs, which results in a highly
dynamic but arguably unpredictable policy and regulatory
environment.

22. Issues cont.
 Shifting of the Policy Emphasis
 There is a clear inclination that the emphasis of China’s broadband
policy has, to some extent, moved upward from the lower level of
infrastructure and service levels, which focuses on adding supply, to
the upper application and user levels by stimulating demand.
 The State Council even issued an unusual guideline that directly
calls for carriers to lower charges on broadband access for end users.
 Universal service policy, which can hardly be categorized as a
demand- or supply-side policy, is a missing part in China’s
broadband policy.

23. Conclusion
 The Chinese government generally plays the role of a “rule
maker” in broadband development;
 A major strategy of the Chinese government is to create a
competitive market structure by restructuring the
telecommunications sector, introducing cable operators,
launching anti-trust investigations, and requiring
mandatory fair access of access lines to all service providers;
 The Chinese government still refrains from investing in
broadband infrastructure directly.

24. Conclusion cont.
 It was observed that there is a shift of emphasis in China’s
broadband policy, moving upward from the lower levels of
infrastructure and service to the upper levels of application
and user levels;
 The Chinese government appears to prefer indirect
demand-side policy instruments, common direct demand-
side policies, such as subsidy to low-income and other
disadvantaged sections of the population, digital literacy
training and other programs are missing.

25. Conclusion cont.
 China's broadband future is uncertain due to unsettled but
important institutional and financial issues;
 China still primarily relies on state carriers to fund the
broadband rollout;
 Fail to assure a level playing field for potential new entrants,
private investors may be reluctant to enter the market;
 Except for the reiteration of some general principles,
China’s broadband policy has not articulated a detailed and
actionable universal service mechanism.