Comments on China's Draft Telecom Law - Telecommunications ...

<strong>Comments</strong> on China’s Draft Telecom LawOn Behalf of:The Telecommunications Industry Association (TIA), the U.S. Information TechnologyOffice (USITO), & the Information Technology Industry Council (ITI)Final Version, 11/3/2009TIA, USITO and ITI welcome China making its draft Telecommunications Law availablefor public review and comment as part of the joint U.S.-China Legal Exchange. Weapplaud and encourage China to continue to make this and other laws and regulationsavailable for public comment in the future. Active and robust exchanges with industrywill help China ensure that policies that are adopted will achieve maximum developmentand market impact.It is important to note that there are a number of ongoing government-led bilateraldialogues, such as the aforementioned legal exchange, between the United States andChina which may cover issues related to some of the regulatory provisions outlined in thedraft Telecom Law. We recommend, that in areas where there are undeterminedoutcomes of bilateral discussion and debate, China adopt a flexible approach and avoidcodifying provisions that are subject to ongoing discussions.China has undertaken a number of important steps to foster expansion of itstelecommunications sector as it develops a dynamic and resilient economy. In its drafttelecommunications law, China has incorporated some important global regulatoryprinciples and applied them to China’s unique circumstances to establish the legalframework to ensure the healthy and robust development of its telecommunicationssector. The comments below reflect industry suggestions for China to consider as itseeks to build and remain the world’s largest telecommunications market. <strong>Comments</strong> areorganized in order of the Articles of the draft telecommunications law.Chapter 1 - General PrinciplesArticle 2. This Article aptly recognizes the trend toward convergence of differenttechnologies and services offered by telecommunications, media and information servicessectors. However, it is debatable whether or not it is effective or even appropriate tosimply apply the laws and regulations governing the traditional media and broadcastingsectors to the vast array of new convergent media services that are offered overtelecommunications infrastructures, including the Internet. Many of these new servicesutilize drastically different technologies, delivery mechanisms, and, in some cases, withcompletely different business models compared with the traditional services. As such,applying regulations that were designed prior to the advent of these new technologies andservices risk stifling the innovation and new market creation brought forth by these newservices. Applying laws and regulations from multiple regulatory authorities could alsolead to overlapping and sometimes contradicting regulation over the same service,potentially creating market uncertainty and confusion that deter investment and marketdevelopment.

We recommend that China consider establishing a convergent, independent, regulator asthe central authority governing the converging telecom, Internet media, and broadcastindustries. We also recommend a multi-tiered, principle-based (as opposed to rulesbased)regulatory framework that employs both traditional command-and-controlapproaches and light-touch approaches such as industry self-regulation and/or coregulation,depending on the nature and maturity of the service under consideration.Article3. China should be commended for realizing the important benefits oftelecommunications networks to developing the Chinese economy. Unfortunately,regulatory processes in China today exist without clearly defined regulatoryresponsibilities. While MIIT has been, in practice, the lead agency with respect toregulating the Telecommunications sector, other government organs (SARFT, SEMB,CNCA, etc) also play a role. It would be helpful to industry if the Telecommunicationslaw could clearly define what constitutes the “competent telecommunications authorities”and, in addition, their areas of policy responsibility with respect to thetelecommunications sector. With this in mind, we remind China of its WTO BasicTelecommunications Agreement Reference Paper commitment to establish anindependent regulator. MIIT, with its multiple policy and industry functions has a clearconflict of interest when it comes to regulating the telecommunications industry in anondiscriminatory and transparent manner.We applaud the State’s support and promotion of network convergence and theencouragement of cross-entry among telecom and broadcast service providers. Webelieve that these policy advancements will nurture healthy and increased marketcompetition and benefit both the consumers and the nation’s economy as a whole. Wenotice, however, the subtle difference in that broadcast organizations are encouraged toengage in the telecom business (with no limitations) while telecom operators areencouraged to engage in radio and TV transmission businesses, which seems to limit thetelecom operators to only the transmission aspect of radio and TV businesses. As radioand TV services migrate onto digital and interactive technology platforms, the associatedbusiness models also undergo tremendous change and often require end-to-end businessintegration across content packaging, content delivery (transmission), and contentpresentation (user interfaces/devices) in order to enable service innovation and maintainservice competitiveness. As such, we recommend that the qualifier term “transmission”in the last sentence of Article 3 be removed to signify the encouragement of truly equalentry among telecom and broadcast service operators.Article 4. We applaud China for including an Article in the law that protects citizens’freedom and privacy. In the same spirit, we urge China to consider an addition to theArticle giving consumers the freedom to choose a telecommunications service provider,thus reinforcing steps taken to create competition in the Chinese telecommunicationsmarket.Article 5. We recognize China’s concern with respect to misuse of thetelecommunications networks. However, it is important from a legal perspective for

Chapter 3 - Interconnection of and Intercommunication BetweenTelecommunications NetworksArticle 19. While we understand Chinese desires to understand the overall networkinfrastructure, it would be helpful if the law could be more explicit in not applying thisrequirement to new entrants, who will not be in a market dominant position and wouldfind such reporting requirements overly burdensome.Article 20. The obligations contained in this Article should apply only to operators,which are major suppliers as defined in the WTO Reference Paper. New entrants willneed access to the networks of the major suppliers on reasonable terms and conditionsand will not have much leverage to negotiate. By requiring that major suppliers makecomprehensive interconnection offers to new entrants, the Telecom Law would send astrong signal that China’s goal is to foster healthy competition in the telecom sector.Articles 22 and 24. We recommend further clarification on how the government willconduct arbitration proceedings for settlement of interconnection disputes and whatgovernment body will oversee this process.Chapter 4 - Telecommunications ResourcesArticle 28. While it is normal to charge fees for use of wireless frequencies, we proposethat China also clarify which government body will be given responsibility for setting thefees, explain how the fees will be established, and provide information on what legalredress (fines, administrative measures, etc) available should an entity interfere with thespectrum use of a licensed holder of same spectrum.Article 29. China recognizes the scarcity of resources in telecommunications and itsdecision to encourage users of these resources to be quick in deployment of services isheartening. However, the industry would prefer a more market-driven and technologyneutral approach for allocation of telecom resources. In addition to designation/openbid/auction methods, China should also consider license-exempted (or license-by-rule)usage for radio frequency spectrum where appropriate and preferable in terms ofstimulating innovation and market adoption. Spectrum trading is also a common practicein many markets with the provision that radio spectrum is allocated without associationwith the use of a particular technology. China should consider allowing the trading ofradio frequencies among qualified users, as it will lead to more optimal use of the scarcespectrum.Articles 31 & 32. The draft Telecommunications Law indicates that organizations thatregister and manage domain names must be approved by competent telecommunicationsauthorities. While we welcome and support third party organizations providing thesefunctions, we are concerned that the law as presently drafted does not require theseorganizations to be neutral and independent. Furthermore, it is not clear what the State’srole will be as described in Article 32, which gives the State the right to exercisemanagement of the distributed use of Internet protocol addresses and the registration of

Internet domain name resources by filing them and putting them on record. Can Chinaclarify what is intended by this Article that the State will not have a deciding role in thedomain name approval and registration?Chapter 5 – Telecommunication Service FeesArticle 34. We support China’s decision to hold public hearings in soliciting opinions onthe setting of upper limits on telecommunications service fees where there is inadequatecompetition. Public comment is a valuable tool for governments to best gauge consumerand industry views in designing policies. We encourage China to establish a publiccomment process for all telecommunications regulatory decisions undertaken in China.Chapter 6 – Universal Telecommunication Service and Protection of Subscribers’Rights and InterestsArticle 38. We suggest that universal telecommunications service be defined as beingprovided to all users, including Chinese citizens, Chinese legal persons, foreign legalpersons and foreign individuals who have a legal operation in China.Article 39. Like many countries, China recognizes the importance of expandingtelecommunication services into non-commercially viable areas. The Universal ServiceFund should explicitly provide assurance that designated operators for universal servicewill be compensated for providing service to areas that are not commercially viable.In support of universal services, China should adopt more market-driven and technologyneutralapproaches in allocating scarce telecom resources such as radio frequencyspectrum. License-exempt use of radio frequency spectrum (such as 2.4 GHz Wi-Fiservices) has proven to be hugely successful in proliferating Internet access andstimulating service innovation. The same license-exempt model could be applied to morefrequency bands in order to support more cost-effective rural coverage and bring downthe overall cost of implementing universal services.Article 43. In the interest of empowering the consumer, it would be useful to includesubscriber requests into the requirement of service providers when requiring numberportability. Steps clarifying number portability options and time frames would bebeneficial to creating competition for consumers.Article 49. Industry recognizes the potential benefits of a real-name registration scheme,and appreciates the provision in this article for protection of subscriber information.However, the vast majority of new mobile subscribers in China is composed of prepaidusers who are currently without real-name registration. Retrofitting such requirements tomillions of existing prepaid users could be an impractical exercise. Furthermore, it isimportant to understand better how to determine if a telecom service would require aregistration process for network access (and hence require real name registration). Areal-name registration system also has limitations, given the possibility of identity thefton the Internet.

Article 52. What is intended by the term “appropriate arrangements” when terminating asubscriber’s access?Article 54. What is intended by the term “enterprise-specific plans” and whatinformation does China expects to be included in the report?Chapter 7 – Construction and Protection of Telecommunications FacilitiesArticles 57 & 59. While there are many global examples where different carriers haveshared in the construction and use of telecommunications facilities, we strongly believethat those decisions must be voluntary and based on the business and technical needs ofindividual telecommunications carriers. We do not believe it is in the interest of China’sfuture telecommunications growth to forcibly require carriers to share in the constructionand use of their facilities. Such forced facilities-sharing reduces competition andincentives for infrastructure build out.Chapter 8 – Telecommunications Standards and Connection of Equipment toNetworksArticle 68. In order for China to continue to avail itself of the best technologies the worldhas to offer, we strongly encourage China to adopt international standards whereverpossible. Global standards developed through privately managed, open, voluntary andconsensus driven standards processes ensure that voices across the technologydevelopment spectrum have an opportunity to influence the development of standards.This approach helps promote interoperability, reduces equipment costs, and helpsaccelerate innovation. Closed standards development procedures shuts out otherimportant voices and can lead to creation of standards in a vacuum that are notcompatible with internationally developed standards, and would not be relevant in aglobal market if those technologies were to be deployed outside Chinese jurisdiction. IfChina mandates national standards or technologies (as we have seen attempted in severalareas), China is reducing its potential to be a global innovation leader. Only throughembracing technology and standards collaboration with the rest of the world, will it beable to fully take advantage of the economies of scale the Chinese market place provides.Article 69. We propose adding the following language to distinguish between enterprisenetworks and public networks. “Special technical requirements for enterprise standardsdeveloped and implemented by enterprises for internal reference shall not be used as partof the network access threshold for public telecom equipment.”Article 70. While we recognize the necessity and importance of standards-compliance intelecom equipment, industry would appreciate a more qualitative definition of “relevanttelecom standards” referenced in this article, perhaps something along the lines of“mandatory telecom standards with GB designation.”

Article 71. While recognizing that China has undertaken steps to improve the TypeApproval process for telecommunications equipment, we believe that additional stepscould be taken to clarify the process and the requirements to improve transparency, createa level playing field for manufacturers, and eliminate redundancies in testingrequirements. These steps will continue to be discussed in bilateral discussions.Outcomes should not be pre-empted by publication of this law.One of the major challenges industry has with the current type approval process is thatthe technical specifications that are required are often changed, and are not made easilyaccessible and available to vendors. China should publish and post on the Internet acatalogue of telecommunications equipment subject to type approval requirements,including making more obvious the relevant standards and when those standards areupdated.Article 72. Further to our call to create an independent telecommunications regulator tocomply with its WTO obligations, we urge China to clarify the legal requirements fortelecommunications equipment and establish one licensing system fortelecommunications equipment rather than the multiple licensing regimes currently inexistence. We also encourage China to shorten as much as possible the current 45-dayapplication/approval process for receiving approval to introduce new telecommunicationsequipment to the Chinese market. The current application timeframe significantly delaysany business from making substantial market-enhancing moves to benefit Chineseconsumers.Article 75. This is an important provision that will help remove black market equipmentfrom China. It would be helpful if China were to clarify further which agency would haveenforcement authority and receive cases, including what legal procedures they wouldfollow.Chapter 9 – Telecommunications Network and Information SecurityArticle 77. For the purpose of legal consistency, we suggest that a reference to China’sprivacy law be included when requiring telecommunications operators to keep a record ofsubscriber information along with a system maintenance journal. We also suggest addingthe following article: “The competent telecommunications authorities shall be able toaudit the measures taken by a telecommunications business operator and to issuerecommendations about best practices and performance indicators concerning the level ofsecurity which these measures should achieve.”Article 80. While we recognize China’s right to ensure security of itstelecommunications network, the language in this article establishes some very broad andvague definitions of what constitutes an act that compromises network and informationsecurity. As written, the language creates legal uncertainties for consumers andtelecommunications companies alike. The free flow of information is critically importantto creating a long lasting, vibrant, and innovative economy. Laws which createuncertainties and as a consequence inhibit the free flow of information not only create

global concerns about China’s commitment to guaranteeing the free flow of information,it unnecessarily puts up obstacles to China reaching its full economic potential.Article 81. The requirement that operators stop transmission and report use of theirnetworks for illegal activities identified in Article 80 reinforces the point we have madein Article 80 regarding the legal uncertainty the vague language in the law creates.Chapter 11 – Supervision and InspectionArticle 92. While the draft law describes supervision and inspection activities authorizedby the State with respect to quality of service, billing systems, network and informationsecurity, and communications support and controls, we are concerned that these maybecome overly burdensome and intrusive for companies to comply with. We recommendthat China establish a process to handle investigations into these issues by settingappropriate parameters and process that is triggered when reports of issues in these areasare reported. Furthermore, this process should be designed to minimize the operationalimpact on service providers. As currently written, the law appears to requiretelecommunications authorities to carry out the proscribed supervision on a continuousbasis.Article 95. We reiterate our recommendation that a process be established to createpublic proceedings before telecommunications authorities issue regulations as well asany technical requirements to ensure adequate opportunity for the public to comment.Article 97. We request the language in this section be clarified as to which authority inChina may take measures to address competition. How do the powers of the telecomauthorities differ from those of entities charged with enforcing China’s anti-monopolylaw?Issues not covered in the draft Telecom LawThe Telecom Law does not specify whether leased lines will be made available by majorChinese carriers at regulated prices. The availability of this type of service is key tofostering competition in the telecommunications sector. Furthermore, the Telecom Lawdoes not appear to contain a requirement that facilities-based carriers resell services on anon-discriminatory basis. Ensuring and enforcing this principle would also be beneficialto fostering competition in the telecom sector which will benefit Chinese consumers.It is important to note that at the October 2009 meeting of the U.S.-China JointCommission on Commerce and Trade, China and the United States agreed to jointly holda program with public and private participants to discuss the issue of intermediary legalliability on the Internet. Because this discussion has not been initiated yet, it would bedifficult to say how these discussions would affect the China Telecommunications Lawand other relevant laws, regulations and agencies roles.