September 2000  No.281
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Vice Minister of Information Explains
the Accounting Policy of China Telecom
Talking of telecom charges, many think of China Mobile and the China Unicom competing in the charge reduction. Many consumers hold that in the market economy, enterprises are entitled to set the charge level and the reduction is good for consumers, so why does the government interfere? Therefore, some think that the reform of China Telecom is not complete, and the Ministry of the Information Industry is meddlesome and reluctant to transfer their rights.
Regarding this question, a correspondent from "Computer World" interviewed Mr. Zhang Chunjiang, vice minister of the Ministry of the Information Industry.
Why does the Chinese Government Control the Telecom Charges?
Mr. Zhang Chunjiang explained, in the monopoly and competition transforming process, the most effective and even the only medium for a government to control the market is the price. Especially with full competition not working on China's telecom market, the government's control and guidance is of crucial importance.
According to Zhang Chunjiang, far from the establishment of the full competition system, the setup of China's telecom market is only at the initial stage. In the past, the market share owning rate of monopoly enterprises exceeded 80%, even if prices were cut by a fairly large margin, these powerful enterprises would not suffer losses, but newly-established enterprises would be forced to close down. In order to help the competitive setup and support new enterprises in this special transition period, the government must control the price, especially the price set by monopoly enterprises. In this way, the low prices of newly-established enterprises will promote their development.
Zhang Chunjiang added, as long as the competitive mechanism is set up and the market share of old enterprises is reduced to a certain level, 60% for instance, the government will deregulate the price, and the market will make adjustments accordingly. Though for a time, it's unfair for the old enterprises, it's only a temporary measure aiming at the final fair.
Improper Accounting Structure is the Main Problem
Many adjustments of China's Telecom accounting system since 1995, especially in March and October, 1993, have lowered the general level of telecom charges by a wide margin.
China is sober-minded in every adjustment. The main problem is the improper structure of the telecom accounting system.
The cross subsidy policy has worked for many years, that is long distance calls subsidizing local calls, international calls subsidizing domestic calls, cities subsidizing rural areas and office calls subsidizing resident calls. This is not unique to China.
Taking the interest of domestic consumers, especially people on medium and low incomes, into full consideration is the biggest advantage of the cross subsidy policy. According to statistics, in 1998, eastern regions subsidized to the west by RMB 11.23 billion, other telecom services subsidized by RMB 10.58 billion to local calls and telegram businesses, and cities also subsidized rural areas considerably.
Taking the interest of domestic consumers, especially people on medium and low incomes, into full consideration is the biggest advantage of the cross subsidy policy. According to statistics, in 1998, eastern regions subsidized to the west by RMB 11.23 billion, other telecom services subsidized by RMB 10.58 billion to local calls and telegram businesses, and cities also subsidized rural areas considerably.
Accounting Structure Problem is a Worldwide Issue
but also a difficulty for the world's open telecom market. The most serious result is the consumption reduction. For example, high charges for international calls in China, produce many reverse calls, i.e. more calls are from the outside to inside, which should have been made "inside to outside", and this in fact reduces earnings.
Consumers' final decision for any product or service depends on the price. Not only the charges for international calls, after favorable charges for calls made in special periods provided by the telecom authorities, long distance calls also face a "rush hour" after 21:00 every day. Therefore, the reduction of improperly high telecom charges will absolutely enlarge the consumption.
Telecom enterprises can afford the reduction. In the past, high charges for international and long distance calls were caused not only by the cross subsidy policy alone, but also by the high cost induced from the backward technology. Nowadays, we have advanced technology, telecom costs have been reduced considerably, and moreover, the farther the distance, the higher the reduction rate is. Therefore, even if there is no competition problem, charges should also be reduced. This is the case in most countries. International charges will be cut by the largest margin, followed by the long distance call. This is aimed at establishing a more reasonable telecom accounting structure.
After the reduction, no subsidies will be offered for local calls, if charges in this sector were not raised, telecom enterprises would suffer losses. The local call business is the basic task of telecom, and if losses last long, enterprises will have great difficulties in developing, and besides, the popularization rate of China's local calls is far below the world average level.

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