China's big three operators are about to move to backbone peering for all Internet traffic, delivering a blow to the two traditional fixed network providers.
From July 1, the regulator, MIIT, will scrap the longstanding fee-charging model for traffic between the big networks. This legacy practice has favored China Unicom and China Telecom, which are said to impose hefty fees on China Mobile for delivering traffic.
The biggest beneficiary of the move is therefore China Mobile, which will save around 2 billion yuan ($285.8 million) a year, according to finance magazine Caixin.
Unlike the traditional two-way telecom interconnection model for delivering voice and text messages, Internet data payment is either one-way – for smaller networks sending traffic to big backbone networks – or settled by peering, where each operator carries the other's traffic without charge.
The MIIT has also directed the major telcos to cut "by at least 30%" the fees they demand from the two smaller network operators, China Broadcast Network (CBN) and CITIC ASP, for delivering their traffic.
The ministry has completely eliminated settlement charges imposed by the operators on educational and scientific networks, such as CERNET.
The losers in this overdue reform are China Telecom and China Unicom, which for historical reasons are the incumbent backbone providers. They were the initial fixed-line network operators and built out their trunk network and data centers in the early years of the Internet.
Tellingly, they began a peering arrangement for their own traffic some years ago, but have continued to charge other operators, and in particular China Mobile.
The move to full peering between the three telcos also acknowledges the huge scale of China Mobile's infrastructure, which is now comparable to the other two.
As well as its 949 million mobile users, China Mobile is the biggest broadband player by customer numbers, with 189 million subscribers, and it has been aggressively building out its data center network.
The reform is also intended to ease the burden on the new, smaller network operators, CBN and CITIC.
CBN has 40 million broadband customers nationwide and is about to roll out a 5G network. CITIC, a division of the prominent CITIC conglomerate, won its Type 1 network license last July. It is focused primarily on cloud and enterprise services.
Finally, the change should ensure improved quality of service. Peering usually means direct interconnection, resulting in better latency and a smoother customer experience.
— Robert Clark, contributing editor, special to Light Reading