USITO Weekly 3/13/2009: Telecom Service Regulation Update

MIIT Updates Regulation for Telecom Services

On March 5, the Ministry of Industry and Information Technology (MIIT) issued a circular, which states from 4/10/2009 the new Telecommunications Service Operation License Management Rules will come into effect. The new regulation will replace the old version released on 12/26/2001.

The new version contains 9 chapters and 49 articles; whereas the old one had 8 chapters and 40 articles. The fifth chapter of the new version contains six more articles than the previous one, most noteworthy among which lies in that "State-owned equity in all basic telecom service companies should not be lower than 51% of the total". In the last but one chapter “Fining Rule”, it defines more infringing items and specifies harsher punishment, such as there will be three-year freeze on license application for companies violating the rules or obtaining licenses through inappropriate means. MIIT.gov.cn, 3/5/2009

USITO Notes: By comparing the two versions, we found that the new one has absorbed a number of rules formulated by MIIT, which were released separately by the ministry in the recent years. For instance, a major change is on the amount of the registered capital requirements: capital for basic telecom business licenses is lowered from RMB 200 million to RMB 100 million (for regional); from RMB 2 billion to RMB 1 billion (for nationwide). This rule was released in September 2008 in another regulation of MIIT, the Management Methods for Foreign Invested Telecom Enterprises. The mandate for 51% minimum SOE equity in basic telecom companies should not be a surprise: the old version also stated in its Appendix II that SOE equities in those firms should "conform with related laws and regulations", which in essense should be same requirement as that of the new one. Despite these changes, most other terms remains the same, except some wording adjustment.

At the current stage it is unrealistic for rules like this one to have disruptive changes. China has a number of regulations that oversee the telecommunications sector, and regular updates, usually at 5-10 year intervals, are not uncommon but slight. The long-waited Telecom Law is said to be in the final round of senior discussion, with several contravercial terms hard to receive concencus between different interest groups.

Translation of China WEEE Regulation

As covered in the last edition of USITO newsletter, the Chinese government has officially released the "Regulation for the Management of the Recycling and Disposal of Waste Electrical and Electronic Products" ("China WEEE"), which reflects the top-level Chinese government attention toward the construction of a national regulatory program aimed at take-back and recycling of electrical and electronic products. We noted in the newsletter that we would welcome feedbacks from our member companies on this issue. As supported by a few member companies, we are able to provide a draft English translation of the China WEEE regulation. Members please click here for the full text.

USITO Notes: After consulting a few member company reps, we got some further readout points for the regulation. First of all, the regulation has not yet defined a specific product list applicable under the new rules. The list looks closely related to the China RoHS, as the products to be covered include all those defined under China RoHS. So the industry has a concern that the clear definition of the applicable products should be necessary. Experts say it is almost sure that the government will further release the “Catalogue of Products” before the effective date January 1, 2011.

Under the new regulation, producers and importers are required to bear recycling obligations, like the donation to the special fund – waste electrical and electronic equipment fund, and sellers are required to bear discarding location obligations. Experts say these obligations appear rather broad in the regulations, and there is a lack of clear interpretation for the additional/follow-up obligations.

Sources said the new rule would add the manufacturers' production cost by 10% or even more, so in this economic downturn period the enforcement is obviously a problem. Though there are nearly two years grace period, it is doubtful whether the Chinese companies will observe the rules.

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