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6 Feb 2016

Interpretation of the 2015 Classification Catalogue of Telecommunications Services (Part II): IDC and CDN

As the second in a series of articles interpreting the 2015 Classification Catalogue of Telecommunications Services (“2015 Catalogue”), this article will focus specifically on the adjustment to and impact of Internet Data Center (“IDC”) and Content Delivery Network (“CDN”) businesses.

I. Expansion IDC Business Scope

The 2015 Catalogue has included Internet Resources Collaboration Services (“IRCS”) in the scope of IDC business, in addition to its current scope. IRCS business refers to services that utilize equipment and resources dependent upon data centers to provide users with services, such as data storage, Internet application development environments, Internet application deployment, and operation management. Examples of such services include network-attached storage services or cloud storage services.

The inclusion of IRCS in the current scope of IDC could have a significant impact on the cloud services industry. Currently, the three major forms of cloud services — IaaS (Infrastructure-as-a-Service), PaaS (Platform-as-a-Service) and SaaS (Software-as-a-Service) — could each be deemed a type of IRCS business. Accordingly, the service provider of these cloud services must apply for and obtain an IDC-type value-added telecommunication business license.

II. Inclusion of CDN Business

The 2015 Catalogue has also added CDN business, listing it as one type of value-added telecommunication business separate from IDC business. 

CDN business was not included in the previous 2003 Classification Catalogue of Telecommunications Services. Consequently, CDN business operators existing in the market usually only apply for an IDC-type value-added telecommunication business license. When the 2015 Catalogue comes into effect, this problem will finally be addressed, as the CDN business operators can apply for and obtain a CDN-type value-added telecommunication business license.

For a considerable period of time, the Ministry of Industry and Information Technology (“MIIT”) has required that IDC and CDN business operators assume partial responsibility when conducting qualification reviews of their Internet clients. Upon promulgation of the 2015 Catalogue, which sets out clear rules for CDN businesses, it is believed that this responsibility will be further clarified and strengthened. The gray area currently existing in the domestic CDN businesses market could be regulated and standardized as well.

III. Influence on Foreign Investment

When China entered the WTO in 2001, it promised only to open up a portion of its value-added telecommunication businesses (with foreign investment capped at 50% in the liberalized businesses), which, however, did not include IDC and CDN businesses, among other businesses. Thus, foreign investors are still unable to make foreign direct investments in IDC or CDN businesses. As an exception, Hong Kong and Macau service suppliers under the Closer Economic Partnership Arrangement (“CEPA”) are eligible to invest in IDC business directly, provided that they hold no more than a 50% interest. When the 2015 Catalogue becomes effective, it will hopefully become easier for Hong Kong and Macau service suppliers to invest directly in IRCS business.

Whether Hong Kong and Macau service suppliers are eligible under the CEPA to invest directly in CDN business is still to be clarified by governmental authorities, including the MIIT and the Ministry of Commerce.

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