TAIPEI, Taiwan (TheStreet) -- China's plan to raise Internet speeds this year is expected to be a bonanza for Chinese e-commerce companies such as Alibaba (BABA). But the move is also likely to lower the rates charged by major Internet service providers, hurting companies like China Telecom (CHA).
The Ministry of Industry and Information Technology said earlier in the week that China would raise broadband speeds while reducing rates for the already widespread utility, the official Xinhua News Agency reported. Increases would apply to fixed lines as well as Wi-Fi, both known now for sloth and disruptions. The effort would take place nationwide, affecting households with broadband as well as Wi-Fi hotspots, both common connection sources in China.
As of last year, China had 642 million Internet users -- less than half the overall population -- and about 4 million Web sites.
By the end of the year, users in major cities will find broadband speed more than doubling to 20 megabits per second, Xinhua said, quoting a deputy minister. Analysts expect the telecom providers to upgrade existing technology, bringing China closer to the world average of 26.9 megabits per second. Speeds in other urban areas would increase from seven to 10 megabits per second, it added. At the same time, average broadband prices would drop 30% this year over 2014.
Companies with income that depends on Web traffic should get more attention, leading to more business. When speeds are too slow, complex Web sites may stop loading, leading users to abandon them for easier ones.
"Your Web page is faster to load, and there's a correlation between usage and speed," said Richard Robinson, founder of Beijing-based app developer Yolu. "Who wouldn't benefit? [Higher speeds] are not only needed, but incredibly welcome," Robinson said.
E-commerce sites, businesses that depend on online advertisements, and ad designers will benefit most directly, analysts in China say. Web sites with bandwidth-guzzling videos will also be seen for longer by more people.
China's U.S.-traded e-commerce giants such as Alibaba and JD.com (JD), for example, stand to pick up traffic, including from customers who use fast-growing mobile Wi-Fi as an Internet source.
NYSE-listed Chinese Web services giant Baidu (BIDU) might find China-focused foreign companies, a core clientele, taking out more ads as faster speeds raise page views. And more eyeballs would land also on ads by China's biggest online service platform Tencent (TCEHY), which has done marketing for multinationals such as Nestle (NSRGY) and Hewlett-Packard (HPQ).
Revenue from online advertising in China was 37.87 billion yuan ($6.1 billion) in the first quarter 2015, up nearly 37% from a year earlier, said Beijing- and New York-based consulting group iResearch in a report.
But U.S.-listed broadband providers China Telecom and China Unicom (CHU) will see revenues drop and expenditures rise in the short term as they add technology for faster broadband, analysts predict. Telecom firms will spend about $180 billion by 2017 to upgrade Internet infrastructure, Xinhua noted.
But over time, sales may grow on "price realignment and better services," said Danny Levinson, a Beijing-based technology angel investor. Internet providers will also open more than 1.3 million 4G base stations in cities as well as remote rural areas of China this year to increase overall coverage, Xinhua said.
"The rate cuts should, at least in the short term, negatively impact operator revenues, although this may be balanced out by greater usage in the long term," said Mark Natkin, managing director with market research firm Marbridge Consulting in Beijing.