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MIIT releases 2015 Telecoms Catalogue
Practical Law UK Legal Update 6-621-8165 (Approx. 5 pages)
MIIT releases 2015 Telecoms Catalogue
by Practical Law China
| Published on 22 Jan 2016 • China |
MIIT has issued a 2015 revision of the Classified Catalogue of Telecommunications Services, replacing the version that has been in place since 2003.
Speedread
The MIIT has issued a 2015 revision of the Classified Catalogue of Telecommunications Businesses. The catalogue classifies the various types of telecoms business that can be carried out in China based on the regulatory category each type of business falls into. The 2015 catalogue addresses classes of business that have emerged since 2003 such as 4G (LTE) wireless, cloud-based solutions and internet domain name registration businesses as well as retiring some existing classes of telecoms business. It has implications for many telecommunications businesses operating in China, in particular those operating information services, as the 2015 catalogue has brought several types of business which arguably fell outside the scope of existing regulation within the scope of China's telecoms regulatory framework. This will result in them needing to meet the criteria for obtaining an ICP licence, including (for foreign-invested telecoms companies) minimum Chinese ownership criteria.
Background
On 28 December 2015, the Ministry of Industry and Information Technology released the 2015 revision of the Classified Catalogue of Telecommunications Businesses (2015 Telecoms Catalogue). The 2015 Telecoms Catalogue, which replaces the 2003 edition and supersedes a draft revision circulated in 2013, classifies the various types of telecoms business that can be carried out in China based on the regulatory category each type of business falls into. The principal regulatory categories are basic telecommunications services (BTS) and value-added telecommunications services (VATS). BTS are regulated far more closely than VATS, and the BTS and VATS are each subdivided into tightly regulated Class I services and more leniently regulated Class II services. For a description of the categories and the regulatory treatment of each, see Practice note, Telecommunications and internet content regulation in China: overview: Classification of telecoms services.
The 2015 Telecoms Catalogue will come into effect on 1 March 2016, meaning that MIIT will start processing applications for telecoms licenses based on the new classifications from that date. For more information on the telecoms licensing process, see Practice note, Telecommunications and internet content regulation in China: overview: Telecoms licensing.
New types of BTS recognised, obsolete classes discontinued
The 2015 Telecoms Catalogue recognises several species of BTS that did not exist in the earlier catalogue. These include:
- 4G (that is, LTE) digital cellular mobile communications services, a new subdivision of cellular mobile telecommunications services (Class I BTS).
- Wired network access services, a counterpart to the wireless access services that already existed (Class II BTS).
- Satellite-based fixed communications services (Class II BTS).
(Classes A1 and A2, 2015 Telecoms Catalogue)
Three of the old BTS classes have also been retired, meaning that no new permits will be issued for these businesses:
- Wireless data transmission services (these included systems such as Cellular Digital Packet Data (CPDP), PLANET, NEXNET and Mobitex).
- Public and user telegraph services.
- Analogue trunking communication services.
(Classes A1 and A2, 2015 Telecoms Catalogue)
New types of VATS recognised
The 2015 Telecoms Catalogue also recognises several species of VATS that did not exist in the earlier catalogue. These include:
- Internet resource collaboration businesses (that is, businesses that provide shared storage, app development environments and so on from a data center), which form a new subdivision of Internet Data Center (IDC) businesses. These would include all kinds of "as-a-service" cloud-based systems. (Class I VATS)
- Content delivery or distribution network (CDN) businesses, an entirely new category describing businesses such as ChinaCache that use networks of proxy servers across multiple data centres to provide high volumes of content reliably to end-users (Class I VATS)
- Offshored call-center businesses, which are now distinguished from those serving a purely domestic Chinese market (Class II VATS)
- Code and protocol conversion businesses, which principally include DNS hosting and resolution services (that is, internet domain name resolution services). This category also includes other forms of conversion between user IDs such as telephone numbers or domain names on the internet or between the internet and cellular or other networks (Class II VATS)
(Classes B1 and B2, 2015 Telecoms Catalogue)
Wider scope and more sophisticated examples of information service businesses
The broadest category of Class II VATS was historically information service business (Class II(4) in the 2003 catalogue). This covers most of the online consumer-facing internet businesses started in the 2000s and 2010s: software as a services (SaaS); online advertising, news sites, e-commerce sites and social media and blogs for example. In the 2003 catalogue, this was defined in very broad terms as "principally including content services, games and entertainment, commercial information and geolocation information". Although the overall scope has not changed materially, five more detailed types of business have now been expressly brought within the scope of this category (individual businesses or products may of course involve one or several of these elements):
- Information publishing and distribution platforms, that is, businesses that provide a platform on which other users may publish articles, photographs, video clips and so on.
- Information search services (that is, search engines). The category includes image and category search.
- Information community platform services. This covers businesses that facilitate user content sharing (either simultaneously or consecutively) in the context of a community.
- Instant information exchanges. These are businesses that provide text, image or audiovisual information to user clients on a real-time basis and specifically include instant messaging (IM) breaking news, interactive voice response (IVR), and internet-based end-to-end bi-directional real-time voice and video services.
- Information security and processing services. These include anti-virus, ad- or spam-blocker services and the like.
(Class B25, 2015 Telecoms Catalogue)
The category remains open and it is clear that as technology evolves, services with a similar setup or effect will also be brought within the scope of this category.
Two VATS reclassified
Internet access services have been reclassified from a class I VATS to a class II VATS. E-commerce platforms and other kinds of on-line data processing and transaction-processing service have been moved in the opposite direction, and are now classified as a Class I VATS instead of a class II VATS.
Comment
China's telecoms market has expanded tremendously since 2003, causing the regulatory framework to look increasingly creaky as the development of new technology has outpaced it. The MIIT released a draft revision of the catalogue in 2013 that addressed a number of the most glaring issues, including dropping the quaintly outdated "因特网" (yintewang, a transliteration from English) with "互联网" (hulianwang, the modern Chinese translation of the word internet), and the 2015 Telecoms Catalogue largely builds on the 2013 revision.
A significant conceptual advance is how class I and class II VATS are now separated. Class II VATS now appear to be pure online services (that is, those that do not require a separate dedicated infrastructure). Class I VATS are those such as data centers that require servers and other dedicated hardware.
The principal implications for practitioners once the new catalogue comes into effect are as follows:
- Licenses will be required for the new categories of business. The 2015 Telecoms Catalogue extends the scope of Chinese regulation to a number of business lines that were not expressly regulated under the 2003 catalogue. As a result, there will no longer be any basis for operating a new or existing business in any of these categories without a licence. Since telecommunications is one of the categories in which foreign participation is generally limited to no more than 50%, to the extent that it is permitted at all, one of the implications of this is that any foreign-invested businesses operating in these categories without a Chinese partner that is qualified to hold an ICP licence will need to find a partner and adjust their business structure. In-house lawyers and those who are advising or have advised on corporate transactions involving foreign-invested telecoms enterprises should draw this to the attention of their clients as soon as possible. It is clear that WFOEs will no longer be able to carry out these categories of business from July 1. VIEs may also be affected once China completes its proposed reforms to foreign investment. For more information on the impact on VIEs of the latest draft of the foreign investment law, see Practice note, Variable interest entity (VIE) structures in China: Developments in January 2015: impact of draft foreign investment law on VIE structures. For information on the restrictions on foreign investment in telecoms more generally, see Practice note, Telecommunications and internet content regulation in China: overview: Regulatory framework for foreign investment in telecoms.
- Existing businesses may need a new licence. Businesses that have been operating within the scope of an ICP license that referred to the old categories should check that the scope of their permitted operations conforms to the new categories, and revise their licence and business scope if it does not.
- Watch for the issuance of implementing rules. It is likely that the MIIT's next step will be to issue new implementing rules explaining to its local offices how to interpret the new catalogue, as well as issuing internal guidelines. Practitioners should anticipate these rules and, where possible, check with local MIIT offices what guidance they have received that they are willing to share.