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China Telecom: IPTV - Connected Life Experiences at Home

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  • 1. CLUE Case Study China Telecom: IPTV Connected Life Experiences at Home Challenge/Opportunity EXECUTIVE SUMMARY In 2007, China Telecom’s annual profits fell 13 percent as many COMPANY PROFILE China Telecom Corporation Limited is a full customers replaced land-line voice services with mobile phones. services integrated operator and the world’s Income from its voice business fell 7.9 percent as the number of its largest wireline and broadband services provider, providing telecommunications and information in-service access lines fell 1.2 percent to 220 million (from 222.7 services including voice, mobile voice, data, video and multimedia in the People’s Republic million in 2006). The company determined that it needed to rapidly of China (PRC). increase its broadband and voice-alternative services to offset the COMPANY HISTORY decline in its voice business. China Telecom focused on IPTV as a Effective May 16, 2002, China Telecom was separated into China Netcom Communication potential revenue source for sustainable growth and profitability. Group Corporation in the North and China Telecom Corporation in territories in the West and South to generate competition and greater Since the company transitioned to a more advanced broadband efficiency. services strategy, video applications (including IPTV, video conferencing, and monitoring services) increased by more than 100 percent (and account for almost 5 percent of total revenue). China Telecom has added new revenue streams through on-demand and interactive IPTV services. However, there are challenges to overcome. Regulatory compliance is a major IPTV deployment issue. The government prohibits telecom operators from broadcasting media. Only four companies have received IPTV licenses: Shanghai Media Group (SMG); China Central Television (CCTV); Southern Media; and China Radio International. There is also extreme competition between IPTV operators and digital TV operators. China Telecom also has a major competitor: China Netcom. China Telecom and China Netcom operate IPTV in China’s southern and northern regions, respectively. China Netcom will be known as China Unicom in the future, as a result of a merger between the two telecom companies.© 2010 Cisco and/or its affiliates. All rights reserved. This document is Cisco Public Information. Page 1 of 3
  • 2. CLUE Case Study Alliances/Partnerships ● Because of government regulations, the IPTV services are jointly operated by China Telecom and IPTV broadcasters. They partner to share their respective advantages. China Telecom provides access equipment, the service platform, and the broadband network. Broadcast operators have the IPTV licenses and contribute television programs and other video content resources. It has been suggested that this requirement for cooperation between telecoms and broadcast companies may be hindering the growth of IPTV. Strategy ● China Telecom has established partnerships with regulated media companies that have been awarded government IPTV licenses to deliver a bundled service that includes broadband and TV/video content. ● The number of IPTV subscribers tripled in 2008, mainly due to the 2008 Summer Olympics in Beijing, free- to-view packages (installing set-top boxes to IPTV customers free of charge with free service bundles), and Shanghai Media Group’s innovations in content, which allow users to pause and rewind live broadcasts, video-on-demand services, and localized information and targeted advertisements. ● Although operators make significant contributions by providing free set-top boxes, the gain in customers allows operators to profit by buying top-quality programs, introducing new technologies such as DRM (Digital Rights Management) to protect their content, and lowering costs. ● China Telecom simultaneously manages IPTV, mobile phone video information, and Internet video services. The company has set up a video information center in Shanghai, in which it combines and shares the video information for TVs, computers, and mobile phones (one source for multiuse). Success Factors/Metrics/Monetization ● China Telecom had 1.5 million IPTV users at the end of 2008, commanding 80 percent of the market. ● Revenue is shared with China Telecom and IPTV license holders (exact portion is unknown). ● In spite of a free package model, with a large customer base, service providers can deliver new advertising models (e.g., on-demand, localized, and targeted advertising). ● China Telecom is offering a bundled service (broadband and IPTV) to promote both services. ● In Shanghai, China Telecom provides promotional IPTV bundles to its 1 and 2 Mbps broadband subscribers. Under such promotions, 1 Mbps broadband subscribers are exempt from the RMB 310 (US$45.38) installation fee for IPTV, while 2 Mbps subscribers can access free IPTV services for two years. Shanghai Telecom has also launched a number of marketing campaigns to encourage subscribers to buy its 512 Kbps broadband packages to adopt 1, 2, or 3 Mbps broadband and IPTV service bundles. Company Background By the end of 2008, China Telecom had 214 million fixed-line telephone subscribers, 35.44 million mobile subscribers, and 47.18 million broadband customers. In May 2002, China Telecom was split into two competing companies operating in the north and south of China. One of the created companies, the larger one in the south, retained the name China Telecom; the other, China Network Communications Group Corp. (China Netcom or CNC), covers 10 provinces including the capital Beijing. In addition, that company merged with two small rivals, China Netcom and Jitong Network Communications, and took on the name China Netcom. China Telecom and China Netcom are free to build local telephone networks and offer local fixed-line services in each other’s territory and offer each other “fair and mutually beneficial access” to their respective local networks. They share the existing China Telecom long-distance network, with China Telecom allotted up to 70 percent of capacity and the rest going to China Netcom.© 2010 Cisco and/or its affiliates. All rights reserved. This document is Cisco Public Information. Page 2 of 3
  • 3. CLUE Case Study References China Telecom web site: http://en.chinatelecom.com.cn Buddecomm report, Oct. 2008, “Asia Telecoms, mobile and broadband market overview.” CEInet IT Market Reporter, June 2009, “China set for IPTV explosion.” Interfax China Telecom Weekly, Nov. 2008, “Shanghai IPTV operators hit on sustainable biz model.” Paul Budde Communication Pty Ltd, Aug. 2009, “China—Major telecom operators: Overview & statistics.” Paul Budde Communication Pty Ltd, Nov. 2009, “China—Convergence: Triple play & digital TV.” China Economic Information Service, Nov. 2009, “China Telecom sets up Shanghai video information center.” Interfax China Telecom Weekly, July 2009, “China Telecom seeking more strategic alliances with regional govts for IPTV business.”Printed in USA FLGD 08867 02/10© 2010 Cisco and/or its affiliates. All rights reserved. This document is Cisco Public Information. Page 3 of 3