First monopoly probe involving large State-owned enterprises

BEIJING - The two domestic telecom giants are being investigated over alleged monopolistic practices, the first such case involving large State-owned enterprises.

Experts said the move may clear the way for the government to broaden the scope of antitrust laws.

The National Development and Reform Commission (NDRC) is probing China Telecom and China Unicom for allegedly taking advantage of their dominant positions regarding broadband access to suppress competition from rivals and charging high fees, Li Qing, deputy head of the NDRC's price supervision and anti-monopoly department, said on Wednesday.

The two telecom giants, which between them control two thirds of the country's broadband business, will face penalties of up to 10 percent of annual revenues if found guilty, Li said.

"It (the probe) will help improve anti-monopoly legislation, especially concerning utilities," Gu Liaohai, a lawyer from the Beijing-based Liao Hai law firm, said.

The probe may be a good start for China to improve legislation and meet international law practices, he added

Sebastien Evrard, a partner at the China office of US-based law firm Jones Day, antitrust specialists, said it is a good sign that the government is tackling broadband prices through anti-monopoly legislation, rather than relying on administrative measures.

Evrard does not think that the case indicates that China will open the telecom market to overseas companies, but it is significant.

"I don't see why it cannot be applied (to other State-controlled industries in the future)," Evrard said.

The move may result in new domestic competitors entering the telecom market, he added.

It's an important sign for China to further open its market after its entry into the World Trade Organization, he said.

Both China Telecom and China Unicom said on Wednesday that they will cooperate with the probe.

China Telecom fell 0.4 percent to HK$4.82 ($0.62) at the close in Hong Kong trading. China Unicom rose 2.5 percent to HK$16.56 after earlier dropping as much as 3.7 percent.

China had a total of 149.9 million broadband Internet users by the end of September, with 23.6 million broadband users coming online during the first nine months of the year.

China Telecom's broadband revenues reach 50 billion yuan ($7.9 billion) annually while China Unicom nears 30 billion yuan, the NDRC's Li said.

Xiang Ligang, a telecom analyst, said the probe will lead to smaller players benefiting if further regulations are consequently introduced to tackle monopolistic practices.

Anti-monopoly cases in recent years mainly involved foreign companies' mergers and acquisitions of domestic counterparts following the introduction of anti-monopoly legislation in 2008. Public opinion has been critical of perceived monopolistic practices among large companies.

China Telecom is the top fixed-line operator while China Unicom is the second-largest mobile telecom company after China Mobile.