As China's leaders battle to keep stock prices high, another group of Beijing officials is engaged in an equally difficult contest with market forces.
The fate of the world economy may not hang off the success of this campaign, but it is nonetheless critical to China's digital economy.
Since early 2015, the Ministry of Industry and Information Technology (MIIT) has been trying to persuade operators to cut broadband prices while at the same time increasing available bandwidth -- two objectives that would seem to be in direct conflict with each other.
China is the world's second-largest economy and home to the largest community of Internet users, which currently numbers around 668 million. But with average download speeds of 5.1 Mbit/s, it ranks a disappointing 82nd globally on broadband performance, according to a State of the Internet report published by content delivery network Akamai Technologies Inc. (Nasdaq: AKAM).
Users have been so unhappy that a new phrase has entered the lexicon -- tisu jiangfei (increase speed and cut prices) -- which MIIT bosses name-check whenever they address the issue.
Their problem is they are under further pressure because of the government's aspirations for China to be a global digital leader. The latest plan, dubbed "Internet plus," aims to spark new life into sunset industries through technologies like high-speed broadband, big data analytics and robotics.
On several occasions this year MIIT officials have called on the three state-owned operators to cut their prices, but with little effect. In May, the MIIT came right out and ordered operators to slash fees. That didn't happen, although operators generously offered to cut domestic roaming fees. The MIIT has since retreated to accepting a promise from operators that prices will fall by 30% before the end of the year.
To get a sense of the scale of the problem, China Internet Network Information Center (CNNIC) figures show that 88% of Internet users (or 594 million people) go online with a mobile device. Of those mobile users, probably no more than 40% are using 4G. Almost all of those are with China Mobile Ltd. (NYSE: CHL). It may have clocked up 200 million 4G users in record time, but it still has more than 400 million GSM customers. Rural network coverage is weak as well. Nearly half of the population lives in the countryside, but they account for just 28% of Internet users.
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To fortify the Internet plus project and assuage public concern, the government has announced that 1.13 trillion yuan ($182 billion) will be in invested in broadband infrastructure over the next three years. Over that period, major city households will have access to 100Mbit/s fiber-based services, while smaller cities will receive 30Mbit/s connections and all cities and villages will be covered by 4G.
But the government has not provided details about the sources or indicated whether the government itself will tip in any cash. It is forecasting a RMB430 billion ($69 billion) investment in networks this year. By comparison, the three operators' capital spending last year totalled RMB375 billion ($60 billion), and around RMB265 billion ($43 billion) of that went on networks. As the pace of 4G deployment slows down, operators are certain to spend less in 2015. Although some additional investment will come from the national cable broadband network project, this remains chronically under-funded. So it is anyone's guess where the other RMB150 billion ($24 billion) or so will come from.
The underlying problem is simply a lack of network capacity. This is hardly a surprise with only three licensed mobile network operators and given the unwillingness of regulatory authorities to introduce more competition.
The head of the MIIT communications development department, Wen Ku, acknowledged at a recent press conference that the problem lay on the supply side. He promised a number of measures, including allowing private investors to enter the market, mandating wider use of shared infrastructure and investing more in municipal broadband.
This wasn't the first announcement about bringing private investment into the telecom sector. The MIIT announced in April last year that it would speed up the introduction of private players to invest or co-invest in infrastructure. Yet despite the acknowledged urgency, the result so far has been two pilot schemes involving four small ISPs.
There is no shortage of willing entrants. Wen said hundreds of companies -- including real estate developers, MVNOs and content and app providers -- have applied to take part in the broadband trials. He didn't explain, however, why it has taken so long to process their applications.
China's long-suffering Internet users, then, can look forward to lower prices some time this year. But it will be years before high-speed broadband becomes a widespread reality.
– Robert Clark, contributing editor, special to Light Reading