More opportunities in the telecom sector in China? Release of the new 2015 Telecom Business Classification Catalogue

The Telecom Business Classification Catalogue is one of the most important legal documents in the telecom regulatory regime in China and was last revised in 2003.

An entity (including domestic PRC company) can only undertake a telecom business if the business concerned is expressly provided for in the catalogue itself. If an entity wishes to carry out a new telecom business which is not mentioned in the catalogue, it can only do so legally upon filing the matter with the relevant local counterpart of the MIIT. The process nevertheless is not transparent. The rules also do not apply to foreign companies.*

The MIIT released a consultation draft of the catalogue back in 2013. Most of the changes proposed in the consultation draft have been included in the final version, with the following exceptions:

• Mobile Communications resale business: In the consultation draft, this was proposed to be a separate Type II basic telecom business. However, in light of the market's reception of the MVNO business, in the final version, this is no longer treated as a separate category of telecom business. Rather, there is only a brief reference that this business will be treated as a value added telecom business for regulatory and licensing purposes.
• Paging business: The paging business which was (perhaps inadvertently) dropped in the consultation draft has made it back to the final version. This telecom business will continue to be regulated as a Type II basic telecom business.

Some of the key changes to the new catalogue are highlighted below:

1. New categories of telecom businesses
   A number of new telecom businesses have made it to the new catalogue, including "Internet-based Resources Collaboration Business", which is going to form part of the Internet Data Centre business and is intended to regulate cloud based services; "Content Distribution Network (CDN) Business", and "Internet Domain Name Resolution Business".
2. Expansion of the scope of information service business
   The information service business has attracted the most amendments, not least because compared to other telecom businesses, the relevant market is the most active and attracts the most private domestic investment to date. In the new catalogue, the definition of information service business expressly refers to the following five sub-categories of telecom businesses:
   • Information Publishing and Distribution Service
   • Search Engine Service
   • Information Community Platform Service
   • Information Real-time Exchange Service
   • Information Protection and Processing Service
3. Re-categorising of certain existing telecom businesses
   A number of telecommunication businesses have also be re-categorised in the new catalogue. In particular, the following telecom business will now be Type II value added telecom business (VATB), which previously were Type I VATB:
   • Online data and transaction processing
   • Domestic multi-party real-time communication

It is perhaps not surprising that "online data and transaction processing telecom business" is now being regulated as a Type II VATB. Back in June 2015, MIIT has already issued a notice allowing foreign investors to set up wholly owned subsidiary company to undertake such business to the extent that it relates to the operation of e-commerce business.

It is perhaps interesting to observe that "IDC" remains treated as a telecom business (i.e. Type I VATB) and "CDN" is now subject to formal regulation (and hence stringent foreign investment restrictions). It remains to be seen how the new catalogue will encourage additional domestic private investment in the telecom sector. What is certain however is that the introduction of the new catalogue itself does not signify the liberation of the telecom market to foreign investments or participation.

_{* It is hoped that the procedure and requirements for operating an ex-catalogue telecom business will become clearer when the new regulations on undertaking new telecom business on a trial basis is released by the MIIT later this year.}