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Building A Virtual Operator in China
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Building A Virtual Operator in China

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An education material to US investors on how to enter China Cable TV Business, 2004.

An education material to US investors on how to enter China Cable TV Business, 2004.

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Building A Virtual Operator in China Building A Virtual Operator in China Presentation Transcript

  • Xiaolin Lu Morning Forest, LLC Jan, 2004 BUILDING A VIRTUAL OPERATOR BUSINESS IN CHINA An “@Home Plus” Model Copyright 2004 – 2011 and Property of Morning Forest, LLC Macro Environment Business Environment Consumer Behavior Opportunities Culture
  • What is this all about?
    • Murdoch + Redstone + others = $B “invasion” to China media industry = contributions to China dinning industry
    • But what is the China media industry, and what power control what?
    • What is the historical trend and on what wave foreign investors could ride?
    Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • MODERN CHINA HISTORY Copyright 2004 – 2011 and Property of Morning Forest, LLC Irreversible Commercialization & Privatization Process 1980 1985 1990 1995 2000s Foreign investment & Private enterprises Market Price System (chaos & re-balance) Property Ownership SOE financial system Agriculture & Small Business PER CAPITA GDP (RMB) Source: China Net, CSFB
  • GROWTH POTENTIAL % $B China IT Industry Production Growth China IT Industry Revenue Source: MII Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • PER CAPITA INCOME & DISTRIBUTION RMB Urban Population (K)
    • Average engineers salary in big cities: $20K – 30K/year
    • Commercial apartment in Beijing: $1K – 3K/sqm.
    Source: CSFB, MII Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • URBAN FAMILY SPENDING & CPE OWNERSHIP RMB/Person/Year 21.6% on communication & entertainment
    • TV-centric & personal ownership
    • Consumer competition
    • Blooming city-rebuild further drives advanced CPE penetration
    PER HOUSEHOLD Source: MII Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • SERVICE PENETRATION Source: CSFB, MII Copyright 2004 – 2011 and Property of Morning Forest, LLC   Population p.a. Income Mobile PC VCD TV Internet National 7,703 63% 21% 53% 126% 6.2% Shanghai 16.1 13,250 80% 47% 58% 158% 27% Beijing 13.8 12,464 94% 56% 52% 148% 28% Zhejiang 43.2 11,716 89% 27% 55% 150% 10% Guangdong 77.8 11,137 123% 45% 73% 149% 12% Tianjin 10 9,338 39% 24% 43% 126% 14% Fujian 34.4 9,189 93% 25% 66% 137% 9% Jiangsu 73.6 8,178 61% 20% 46% 136% 8%
  • TV CENTRIC ENVIRONMENT mn TV
    • 10% of TV household purchase new or change TV set every year
    • Booming city re-build and “consumer competition” drive large screen and high-end TV sales
    • 0.98B RMB Movie theater revenue in 2002, equals to 0.07 movie viewing/person/year
    • Consumers are more interested in TV drama serious: a culture phenomena
    Minutes/day/person Source: MII Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • ONLINE PENETRATION mn Sub mn PC Sale Source: CSFB, MII Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • ONLINE USER PROFILE % of users % of Time % of users % of users User Age Places Income Spending Source: CNNIC “ Hidden Money Flow” Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • ONLINE SERVICES mn Subs
    • HSD service is more and more likes a video business
    Source: CSFB Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • OPPORTUNITY FOR VIRTUAL OPERATORS: CREATING VALUE OVER INFRASTRUCTURE
    • 9.8B SMS transmitted in 2004 Chinese New Year
    mn Sub Source: CSFB Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • CABLE & MEDIA HISTORY Government Station Broadcaster/Program + Cable
    • Administration TV
    • On government budget
    • 4-level: central, provincial, city, district
    BARFT THEN Copyright 2004 – 2011 and Property of Morning Forest, LLC Government Station BARFT TV Group MSO
    • 357 TV Networks
    • 2,334 channels, including 50 national ones
    • 19.7B RMB advertising revenue
    • 9.56M broadcasting hours, 2.02M program hours
    • 4K+ MSOs
    • $1.5 ARPU
    NOW
  • CHINA MSOs % of systems Subscribers
    • 340M TV household, 100M cable TV subscribers
    • 4K+ MSOs due to the 4-level TV history
    • Aggressive consolidation since 2003
    • 10% of networks are upgraded
    Source: SARFT Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • INDUSTRY AND REGULATION Copyright 2004 – 2011 and Property of Morning Forest, LLC
    • Assets: CCTV, CBN, small portion of CCN
    • License: National video & ISP
    • Huge profit with CCTV, but 40% of programs are outsourced
    Propaganda CCTV SARFT CBN CCN Local Government BRFT Station MSOs TVG IIO
    • Assets: infrastructure & station
    • License: video & limited ISP
    • Ownership: gray
    MII Telecom Groups Local Telcos
    • Manufactures
    • R&D
    • Assets: national and local infrastructure
    • License: voice & ISP
    • Ownership: allow 25 – 49% foreign
    IOO policy policy
  • THE TRENDS
    • Started commercialization in 2003, based on the government defined “Culture Reform”.
    • Government mandated digital pay TV.
      • 2003 start, 2005 DTH, 2008 Terrestrial, 2010 Complete conversion, 2015 shut down analog.
      • More flexible pricing, censorship, quota, distribution, & ownership
    • Fast-pace consolidation (land grabbing) and moving to triple-play
    • Critical needs:
      • Business operation
      • Infrastructure and platform readiness
      • Value-added services to compete with telecom systems and to increase the valuation (ARPU)
    Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • CHANGING POLICY & PRACTISE MII Telecom Groups Local Government BRFT Station MSOs
    • Still try to consolidate from national level
    • Establishing national digital pay TV production, aggregation, distribution, and management platform
    • >50% outsourced operation & ownership is possible.
    TVG
    • Manufactures
    • R&D
    Propaganda CCTV SARFT CBN CCN
    • Aggressive consolidation ( province level)
    • More flexible policy & practice
    • Hungry for triple-play
    • Outsourced operation and ownership very possible
    • Start invest into cable industry
    • Aggressive move to content distribution
    • Triple play emerging
    Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • MACRO COMPARISON
    • High potential on value-added services and scale based operation
    Source: SARFT, MII, NCTA Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • OPPORTUNITIES AND ISSUES US China Copyright 2004 – 2011 and Property of Morning Forest, LLC Basic: $13.44 Ext Basic: $40.49 Digital Tier $50.44, $60.44, $68.44, $78.99, $93.99 HDTV: extra $5 VOD& DVR: $9.95 HSD: $52.95 Telephony: $25 Basic: $2.5 HSD: $15 US China Network/HHP $175 $175 Actives -80% 1 CMTS/Sub $8 $35
  • BUSINESS VALUATION Source: Company Data Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • RIDING THE WAVE Copyright 2004 – 2011 and Property of Morning Forest, LLC
    • Like culture-based services
    • Herd effects
    • Other industries support penetration
    Consumer/Market Behavior
    • Assets consolidation, and buildup
    • Fast growing pay DTV, triple-play
    • Desire for commercial operations
    Business Environment
    • Commercialization & privatization
    • Stable growth of GDP and IT industry
    • Fast growing income and spending
    Macro Environment
  • OPPORUNITIES
    • Changing and favorable environment:
      • Commercialization and privatization
      • Consumer behavior and new revenue format
    • Leverage:
      • Riding the wave of commercialization of broadband and content distribution business
      • Utilize local & central power, and the consolidation processes
      • New revenue format to lead the consumption
    • Strategy
      • Two-step “outsourced operation” model for land-grabbing and equity buildup.
    Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • TWO STEPS: BUSINESS INTEGRATION TO VIRTUAL OPERATOR
    • To establish relationship and trust
      • Business and operation solutions
      • Technology solutions and system integration
    • Becomes a virtual operator
      • Carve out the service aggregation, distribution, and operation management
      • Operate value-added broadband only services
    Copyright 2004 – 2011 and Property of Morning Forest, LLC
  • MARKET POTENTIAL
    • Infrastructure business
      • 340M TV HHP, 100M HHP cable system, 10% upgraded
      • 90M HHP to upgrade, 240M HHP to build
    • Outsourced service aggregation, distribution and management platform
      • Government mandated DTV ($180B market)
      • Revenue sharing (@Home model) on outsourced operation (current SMS VAS is based on 15:85 sharing)
    • Broadband & cable only content
      • Combine SMS, TV, advertising, and good-sale.
      • IP streaming
      • Current $191M online gaming and $475M SMS/VAS
    Copyright 2004 – 2011 and Property of Morning Forest, LLC