Vague regulations, overlapping responsibilities and infighting between different Chinese regulators are threatening the development of a potentially huge market combining telecom networks and media content, according to Marcia Ellis, a Hong Kong-based lawyer with Paul, Weiss, Rifkind, Wharton & Garrison.
"The regulations to deal with multimedia on broadband have not been prepared," she said during a presentation at the CommunicAsia show in Singapore this week. "The whole regulatory framework does not exist, and is not likely to exist soon in a form acceptable to foreign investors."
In many countries, regulating the internet, telecommunications, content and the convergence between them is simply a question of bureaucracy. In China, many more serious factors are at work, according to Ellis.
"The history [of regulation] is very bitter and has resulted in actual bloodletting on multiple occasions," she says. "When telecoms companies started to provide content or when TV companies got into Internet services, their employees went around cutting each other's lines and even fighting. People are very serious about convergence in China."
The problems extend to the government, with a number of different bodies claiming authority over the sector.
In 1998, the government planned to create a single body called the Ministry of Information Industry (MII) for telecommunications, broadcast networks and content by combining the Ministry of Posts and Telecommunications (MPT) and the Ministry of Radio, Film and TV (MFRT).
But the MFRT, with support from the Communist Party-led Ministry of Propaganda, argued successfully that a specialist body was needed to vet content for political and cultural acceptability, and so along with the formation of MII, a separate body known as the State Administration of Radio, Film and TV (SARFT) was set up.
These two bodies, together with the Ministry of Culture, which has authority in the area of "cultural products," now compete for management of the multimedia sector, according to Ellis.
"The prohibitions on content are vaguely drafted, and there is no clarification and no precedent," said Ellis. "If they want to find you in violation, they probably can."
Ellis cites a case where an online game imported from Sweden was judged by the Ministry of Culture to show the People's Liberation Army in an unacceptably poor light, further blurring the lines over who has the ultimate say over content.
As an example of the vague regulations, a 2003 decree from SARFT, was meant to regulate videostreaming over the internet, but the wording uses the phrase "information networks" and could therefore apply to applications such as mobile data services, according to Ellis.
Telecommunications companies that want to apply for a licence under the SARFT decree must have two years' experience in broadcasting, which very few have. Large Chinese operators such as China Telecommunications and China United Telecommunications are probably too large to be stopped, but smaller operators and their foreign investors are vulnerable, Ellis says.
"The environment is very difficult for foreign investors," Ellis says. "Some of the regulations are ridiculous in the extreme, and the space is becoming narrowed for foreign companies. It makes you wonder what the purpose of the WTO [World Trade organisation] exercise is if foreign companies are going to be so restricted."