June-July China Bulletin

The Chinese Ministry of Industry and Information Technology (MIIT) issued a new draft Telecommunications Services Classification Catalog (Catalog) for public comment through June 24, 2013. The Catalog lists and classifies the kinds of services for which an operations license is required in China and also divides telecom services into two main categories: basic telecom services, including telecom infrastructure, and value-added telecom services (VATS), which include services other than infrastructure, such as most Internet-related services. It further divides each main category into Type I and Type II services.

The draft Catalog, when finalized and promulgated, will replace the currently effective version issued in 2003. The purpose of the changes is to account for technological developments in the last decade (e.g., cloud computing and software-as-a-service) by adding, revising and deleting the categories of listed services.

The Catalog functions as a reference for other telecom and investment regulations. Those regulations require a telecom operator to establish a presence (typically a subsidiary) in China in order to provide certain classes of services and to apply for an operations license from MIIT. They also impose minimum capital and local ownership requirements. A subsidiary engaging in VATS business, for example, is typically limited to 50% foreign ownership, i.e., it must be a joint venture and local Chinese partner(s) must own and (formally) control at least 50% of the entity.

The draft catalog introduces new kinds of basic telecom services, including:

  • a subcategory of Type I basic telecom business for business adopting the Long Term Evolution (LTE) standard to provide voice, data and multi-media services; and
  • resale of mobile telecom services, including the business of acquiring mobile communication services from business-to-business operators and repackaging such services for sale to end-users.

It also expands the scope of VATS to introduce three new kinds of business:

  • Internet resource collaboration services, which covers cloud services utilizing remote data centers, such as storage, grid computing and software-as-a-service;
  • Content distribution network services, covering distributed network data distribution management services;
  • Internet domain name resolution services, covering provision of authoritative and recursive DNS hosting and resolution services, as well as general “code and protocol conversion” between user identifying codes (such as telephone numbers, domain names and Internet service numbers), within the Internet or between other networks and the Internet.

Further, the Catalog clarifies and expands the scope of the VATS category “Internet Information Services” to include:

  • Information publishing and distribution services, such as online platforms for distribution of information and applications including news websites, electronic notice boards, client-service terminals and applications stores;
  • search engine services;
  • Internet-based platforms for information exchange among multiple end-users, such as social community websites, blogs, chat rooms and online gaming platforms;
  • information real-time exchange services, including information exchanges, real-time communications (voice or audio-visual) and interactive voice response services through end-user software applications; and
  • information protection and processing services, including virus and information protection services (e.g., anti-spamming) through end-user software applications.

The catalog also removes or reclassifies certain services.

Questions? Contact Allan Marson at china.desk@ishimarulaw.com for a complimentary response.

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