# Transportation Deployment Casebook/2018/Fixed Telephone Subscription in China
## Qualitative
### Introduction

Fixed phones, also known as landlines, are devices that allow its users to connect with each other remotely but immediately by transmitting their voices through a laid cable. A typical fixed phone is usually consists of a microphone, a earphone, a coil, a ringer, and a dial or keypad. The receiver transmits the vibration of incoming sound to fluctuating pressure for traditional carbon transmitter and voltages for modern electret transmitters. The signal is then transmitted through the wire to another speaker’s receiver. The receiver “converts fluctuating electric current into sound waves that reproduce human speech”. Telephones enable its users to exchange information immediately without much delay. Its ability to recreate the sound of speakers allows communication to be more intimate and real than mailing. The users of this technology include all walks of life, but started with businesses and listings. Later families adopted it. Before the internet and smart phones, telephone was the most common telecommunication means globally.
This article aims to investigate the fixed telephone subscription in China from 1975 to 2017, data as shown in Appendix. The unit is subscription per 100 capita.

### Prior to the Advent of Fixed Phones

Before the emergence of landlines, people could only communicate remotely through texts and symbols. Talking is one of the most basic ways of communicating. However it was restrained by the volume of sound thus is only effective in short distances. During ancient times, beacon fire were means for exchanging information in a war. Writing letters was also one of the oldest means of long-distance communication. Pigeons were trained as the “transmitting devices”, other than postmen. The principal defect of mailing was the low speed, especially before the invention of trains and automobiles. Mails was predominantly handled by post offices operated by the government. Telegraphy was then invented. Francis Ronalds successfully send the first telegraph through electricity in 1816. It significantly accelerated the speed for communication that by 1850s there are 23000 miles of wire only in the United States. However it was still a slow mode for communication compared to instant communication, like smartphones today, due to its systematic structure. For example, users would have to physically go to the offices to send and retrieve messages and the telegraphs were decrypted by human beings instead of a machine. Summing it up, prior to the advent of fixed phones, modes of communication were either slow or limited to short distance.
In China, the Qing Government constructed its first telegraph lines in the 1800s. By 1908, there were 45448 kilometer of telegraph cable in China. However, these are only for military purposes and the mass still relied on postal mails for long distance communication. Telephones did not gain much attention among the major population in China due to language barrier and China cutting it off from the outside.

### Invention

A well known “fact” is that Alexander Graham Bell invented the first speaking phone in the US in 1876. However, he was not the first or the only one. Johann Philip Reis created a sound transmitting device as early as 1861. Elisha Gray went to the patent office the same day with Bell but lost the patent to him. Later on Thomas Edison improved the technology that produced stronger signal which was used for a century.
Scientists, inventors, and engineers at the time competed fiercely on this subject. The basic components of a landline phone are a power source, a switch hook, a dialer, a ringer, a transmitter, a receiver, and a anti-sidetone circuit. Knowledge of both electrical engineering and mechanical engineering were combined for the invention of such product. For example, a traditional ringer is mechanical. It is driven by the movement of magnet due to the passage of circuit. Later the ringer upgraded to electronic ones, where a crystalline material vibrates due to circuit passage.
The connection between telephones was initially based on a manual switching system, where the wire of two telephones had to be physically connected in the central office. The system deficit of the system exposed as more users joined — manual switching became too complicated to and time consuming. Automatic switching evolved as a consequence, which saved numerous labour cost.
Later on, wireless landlines were invented, which granted flexibility to users, though only within short distances. As communication technology evolves, cellphones were invented, which are even more flexible. They gradually occupied the market for telecommunication globally.
Telephone profoundly impacts the human society. It is the first technology that provides instant information exchange to the mass public, laying the foundation for cellphones. Telephone transfers information more quickly. Automobiles/airplanes/trains transfer human themselves and freight more quickly. The pace of the society was deeply effected.

### Early Market Development and Policy, -1993

The first few subscribers in the world were customers of the District Telephone Company of New Haven, Connecticut in 1878. They were mostly businesses and listings. However, the first landline in China was not for private or commercial purposes, but for military purposes. Furthermore, the birth of fixed phone subscription in China took off later than the rest of the world due to its "chaotic political disturbances”, including the preceding wars, the overthrown of the Qing Dynasty, the Civil War, the great leap forward, and the Cultural Revolution. Similar to telegraph services, foreign companies first set up telephone services in China. The governmental management of telecommunication later in China was taken charge of by the Ministry of Posts and Telecommunications (MPT), a classic “example of state-owned postal, telephone and telegraph monopolies that dominated the telecommunications landscape in most of the world for the past 100 years”. In the second half of 1800s, several military telegraph circuits was built, some linking the head office and the fortresses and the weaponry factory. Telephone infrastructures were built for the same purpose. 1908 is the beginning of nationalization of the telecommunication industry. The quality of service was terrible under the management of the Qing. Furthermore the situation of telecommunication monopoly lasted for decades.
In 1960s and earlier, telecommunication was an “instrument of governmental administration and national defense rather than as a commercial entity in its own right”. As a result, the networks in this centrally planned economy were only extended to major cities and strategically important sites. Nevertheless, length of telephone line doubled from 1958 to 1960, though on a small scale (less than 1 subscription per 100 capita). In this stage, the Chinese government has attempted to implement several income and expenditure management schemes to boost the industry, all have failed. One example was that “the organizations handed over their income to the MPT every 3 or 5 days and claimed back their expenditure retrospectively”. Another was the difference management system. Because only the first caller will pay for the bill (not the one who hears the ringer and picks up the phone), major cities, such as Beijing, has created more income than more rural areas, such as Tibet. The issue of balancing the quota of different areas remained as a constant struggle against informal institutional constraints.
After the Cultural Revolution, China embarked a program of economic reform, beginning in 1978. Telecommunication services slowly begun to transform slowly from political instrument to commercial business. The decentralization of telecommunication also took place, both financially and administratively. However, the telecommunication business remained as a industry of monopoly under the control of MPT for this period.
At the same time the market for landline subscription in the US was undergoing a stable growth, but in China the commercial development was in a stage of stagnation, as shown in the figure on the right. The early technology advancement for telephones did not impact the Chinese market as a consequence.

### Growth, 1994-2005

In 1994 alone, the number of fixed line subscription increased by 53%. This year can be seen as the beginning when the Chinese telecommunications market transformed to be a buyers’ market instead of a sellers’ market. A company called Lian Tong was approved and backed by the MPT to construct a second national landline network, followed by Ji Tong. The operating enterprise of MPT was separated out in 1994 and renamed as China Telecom in 1995. They then became competitors that finally broke the monopoly. Price wars started between the companies. The package price for installation, handset, and other charges decrease by approximately 50%. The coverage of signal expanded quickly. Unicom alone added 13 cities in 1996. In 1997, it finished to build a fixed-line network with 500 million yuan but the was refused by local telecom officials for “technical issues”。
“New entry into the telecommunication sector has been officially sanctioned nationwide, which opened the way for the development of new companies, specialized networks and thus greater pluralism and decentralized decision making in China’s networking environment”. However, for these companies, their political strength brought about their organizational weakness — slow in decision making and barely independent.
Nonetheless, telecommunication services were gradually privatized in a Chinese way. MPT would only approve new services that was not in its service area to attempt to maintain its monopoly. Still the trend of further liberalization was unstoppable. Firstly, aggressive project was launched by The Ministry of Electronic Industry, called the Golden Projects. Secondly, for the safety of military communication, the network can not be open to public use. In mid 1999, China Telecom was split into four independent companies and China Netcom was found in the same year, marking the beginning of the fully competitive era for Chinese telecommunication. Other new entries that joined around 2000 are Railcom, Satcom, Tietong, etc. But they are relatively minor competitors.
When China joined the WTO in 2001, it was agreed that up to 50% of fixed-line phone company can be owned by foreign franchise starting 2003. This introduced not only foreign capitals but also foreign experiences into the Chinese market.
During this stage, the fixed phone subscription in China saw a rapid increase, from 2 subscription in 100 people in 1994 to 27 in 2005. The quick growth can be attributed to three generic factors: “technological change, influence of the telecommunications liberalization experience of other countries and a strong economic propellant for liberalization of the chines telecommunications industry”.

### Maturity, 2005-2007; Decline, 2008-present
#### Maturity

As this mode of communication enters maturity, the speed of growth decreases. Graphically, the slope of the S curve becomes less steep. China fixed phone market has barely gone through this stage, possibly stroke by the popularization of cellular phones and the Internet. The advantage of cellular phones over fixed line is clear — a more flexible user experience. Furthermore, China wanted to popularize 3G systems before the 2008 Olympics in Beijing. Companies also seized this opportunity to pivot their emphasis from fixed land lines to 3G cellular network. China Mobile and Unicom were included in this competition but they were not the only ones. “Other major and minor fixed-line cooperations also stood to become providers of the service.” However, the tycoons in this industry are still the old ones that are never completely separated from the government, such as China Telecom and Unicom.
Searching for more profits, China Mobile, one of the major companies, started overseas acquisition for earnings. Their first attempt to purchase PTCL in Pakistan in 2005 failed but in 2007, their second attempted worked out. Later a telecom company in Luxembourg were purchased by China Mobile.
Fixed line subscription peaked at 27 per 100 capita by 2005 and that of cellular subscription soared to 29.7 by the same year and continued to grow. By end of 2006, number of users of major networks totaled 137 million. The time for Internet has come.

#### Decline

The total landline subscription in China begun to decrease starting 2008. As the economy of the entire country grows, the price of cellular phone and network subscription begun to drop.
Consequently, some landline phones were unsubscribed. The number of subscription per 100 capita almost halved compared to its peak in 2006. The popularization of mobile phones and instant messaging apps. One that dominates the Chinese market is Wechat. Its functions include text messaging, audio and video calling. Thus it is a perfect substitute for fixed line phones. This becomes more the case as the price for cellular data decreases with time.
As usage of fixed line phones has inevitably started to decline, there is little possibility to revert the trend. The only way for the telecommunication companies to survive is to adapt themselves to this era of the Internet. In order to attract new customers, telecommunication companies promotes land line subscription to purchased together with network data subscription as a package, with a discount, or even together with cellular subscription. For example, China Telecom is now offering a plan of 2189 CNY per year that offers 500Mbps broadband, a cellular phone plan with unlimited data, and a fixed line number with free calls. Another example is their promotion to attract old customers, e.g. a fixed line subscriber who wants to get a cellphone can pay less than a new one or exchange a fixed line service with a broadband data plan, but cheaper.
To conclude, the time of fixed line has officially going to an end, just like telegraph. Though the relevant service might not prevail anymore, the major companies that used to offer these services can still make use of their resources to pivot and profit.

### Conclusion

The life cycle of fixed phone subscription in China was shorter compared to the global average, as shown in the figure on the right. It has a fierce growth, a short period of maturity and a vicious decline. The late but quick development in China benefited from the past experience of telecommunication from other countries.

## Quantitative

In this section, the life cycle of fixed line subscription in China is numerically predicted and compared to the historical data obtained from World Bank.

### Method
#### Model

The mathematical model is provided by David M Levinson from the University of Sydney. The main function is:
$S(t)=K/[1+\exp(-b(t-t0)]$
where S(t) is the status measure, (e.g. Passenger-km traveled), t is time (usually in years), t0 is the inflection time (year in which 1/2 K is achieved), K is saturation status level, b is a coefficient. The function will be curve fitted by estimating k and b. Curve fitting is broken up into two parts: before and after 2006. The k and b value for both are tabulated below.
Curve Fitting Result :
| | Before 2006 | After 2006 |
| K | 1000000 | 80 |
| b | 0.188930921 | -0.083428748 |
| t$_0$ | 2062.161363 | 1998.724665 |
The historical data and the predicted data are tabulated and illustrated below.
Historical and Predicted Fixed Line Subscription in China from 1977 to 2006 :
| Year | Fixed Line Subscription per 100 Capita | Predicted Fixed Line Subscription per 100 Capita |
| 1975 | 0.18372 | 0.07 |
| 1976 | 0.18794 | 0.09 |
| 1977 | 0.19256 | 0.08 |
| 1978 | 0.19927 | 0.10 |
| 1979 | 0.20747 | 0.12 |
| 1980 | 0.21539 | 0.15 |
| 1981 | 0.22033 | 0.18 |
| 1982 | 0.22915 | 0.22 |
| 1983 | 0.24182 | 0.27 |
| 1984 | 0.26339 | 0.33 |
| 1985 | 0.29135 | 0.41 |
| 1986 | 0.32137 | 0.50 |
| 1987 | 0.35156 | 0.61 |
| 1988 | 0.41726 | 0.74 |
| 1989 | 0.49242 | 0.91 |
| 1990 | 0.58427 | 1.11 |
| 1991 | 0.71062 | 1.36 |
| 1992 | 0.95258 | 1.66 |
| 1993 | 1.424 | 2.03 |
| 1994 | 2.221 | 2.49 |
| 1995 | 3.2829 | 3.04 |
| 1996 | 4.3958 | 3.72 |
| 1997 | 5.5843 | 4.55 |
| 1998 | 6.8974 | 5.56 |
| 1999 | 8.524 | 6.81 |
| 2000 | 11.287 | 8.32 |
| 2001 | 13.972 | 10.18 |
| 2002 | 16.496 | 12.45 |
| 2003 | 20.113 | 15.23 |
| 2004 | 23.726 | 18.63 |
| 2005 | 26.516 | 22.79 |
| 2006 | 27.67 | 27.87 |
| 2007 | 27.352 | 26.72 |
| 2008 | 25.317 | 25.25 |
| 2009 | 23.204 | 23.83 |
| 2010 | 21.65 | 22.46 |
| 2011 | 20.85 | 21.14 |
| 2012 | 20.226 | 19.87 |
| 2013 | 19.308 | 18.65 |
| 2014 | 17.943 | 17.48 |
| 2015 | 16.535 | 16.37 |
| 2016 | 14.722 | 15.31 |
The periods of birthing growth, and maturity of landline subscription in China can be identified, historically and predictively, as shown in the table below. Some differences between prediction and actual data can be observed.
* The actual birth phase is longer than predicted. This is probably a result of the “chaotic political disturbances”.
* The actual speed of growth in 1985-2000 is quicker than the predicted one.
* The actual speed of growth in 2000-2005 is almost the same as the predicted one, as the slope of two curves are almost parallel.
* Since the modeling process has broken the data into two parts (before and after 2006) the prediction did not reflect a short period of stagnation from 2005 to 2007.
* The actual speed of unsubscription from 2010 tp 2012 was slower than predicted one.
In general, the model is relatively accurate.

## Reference

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* 1 2 www.nps.gov/nhl/find/withdrawn/telephone.htm
* ↑ Appleyard, R. (1930). Pioneers of electrical communication. Ayer Company Pub.
* ↑ Du Boff, R. (1980). Business Demand and the Development of the Telegraph in the United States, 1844-1860. The Business History Review, 54(4), 459-479. Retrieved from http://www.jstor.org/stable/3114215
* 1 2 3 4 Lee, P. S. N. (1997). Telecommunications and development in china. Cresskill, N.J: Hampton Press.
* 1 2 3 4 5 6 7 8 9 Yan, X., & Pitt, D. C. (2002). Chinese telecommunications policy. London;Boston, Mass;: Artech House.
* 1 2 3 Mueller, M., & Tan, Z. (1997). China in the information age: Telecommunications and the dilemmas of reform. Westport, Conn: Praeger.
* ↑ https://data.worldbank.org/indicator/IT.MLT.MAIN.P2?locations=CN-US&view=chart
* 1 2 3 4 5 6 7 8 Harwit, E., & Oxford University Press. (2008). China's telecommunications revolution. Oxford: Oxford University Press.
* 1 2 3 https://data.worldbank.org/indicator/IT.MLT.MAIN.P2?locations=CN&view=chart
* ↑ http://emall.sh.189.cn/30010004/347/100000000007328.html
* ↑ https://data.worldbank.org/indicator/IT.MLT.MAIN.P2?locations=CN-1W&view=chart