State Phone Monopoly Makes Using the Internet Difficult

Both the Chinese government and its critics are touting the Internet as the latest tool for political discourse, with dissident Webzines and official ministry home pages vying for readers’ attention in Chinese cyberspace.

Yet for China’s citizens, the overwhelming majority of whom live at a technological level that is decades behind the Information Age, the politics of the Net are of secondary importance. The economics are the real battlefield.

The issue is whether China will allow citizens to enjoy technological progress or keep it unaffordable through the government’s telephone monopoly.

“I tend to think more about access,” said Yuezhi Zhao, an associate professor of communications at UC San Diego. “And it is amazing that while so many people celebrate the democratic potential of the Internet in China, almost nobody cares about the infrastructure and the fact that the Internet service-provider industry in China is in great trouble.”

Even with the number of Internet users increasing at an annual rate of 300%, few--if any--of China’s more than 200 service providers are able to turn a profit.

Leasing telephone lines from China Telecom, the government’s phone company, accounts for up to 80% of the costs facing service providers. By contrast, leasing phone lines accounts for about 6% of costs for Internet providers in the United States.

The government has announced that, in the next few years, it will split China Telecom into individual companies for land lines and mobile and paging services. Analysts are not sure whether the spinoff firms will relinquish their individual monopolies.

Meanwhile, competition among Internet providers to offer a few value-added services to customers is fierce.

The high cost of doing business is passed on to consumers. Monthly fees for online time can easily add up to $75, well above the average disposable income of $55 a month earned by urban Chinese.

As a result, about 70% of young urbanites have no access to the Internet, according to a recent survey reported by the official New China News Agency. The survey found that only 3% surf the Net often and that 6% have never even heard of it.

Web surfers also are discouraged by the low-quality content and graphics of most Chinese-language sites. Even worse, outdated modems and limited bandwidth make Web surfing here tortuously slow.

For most of China’s laboring masses, computers and the Internet provide poor returns on a big investment.

“I wouldn’t know what to do with a computer or how to use it,” said Li Wu, a 38-year-old garment trader. “A phone and fax take care of all my needs.”

Yet to the small minority of bureaucrats and affluent young adults working in private and foreign-backed enterprises, the Internet provides an indispensable window on the outside world.

With their relatively high disposable incomes, credit cards and appetite for information, they are able to benefit from China’s embryonic e-commerce. Now they can purchase airline tickets through Shanghai Online or order computers through Dell’s China-based distributors.

This elite group has become the prime target of China’s fledgling Internet advertising sector.

Motorola, Compaq, Nokia and other multinationals have become advertisers on Sohu at https://www.sohu.com, a popular Chinese-language Internet portal and search engine. Sohu’s creator, China Internet Technologies Chief Executive Charles Zhang, claims that his site commands 60% of the nation’s $1.2-billion online advertising market.

Although China’s top firms spend billions of dollars for prime-time advertising seen by about 800 million television viewers, they are wary of paying for ads on the Internet, likely to be seen only by the nation’s estimated 2.1 million Internet users.

Yet Zhang predicted that “1999 will be the year in which Chinese firms experience what multinationals experienced in 1998.”

Sohu, which sounds like “search fox” in Chinese, recently changed its spelling from Sohoo to head off a potential lawsuit from the popular U.S. portal Yahoo.