China's network convergence raises new challenges

Charice Wang/Ovum
13 Sep 2011

Telecom and media convergence is underway in China. Trials are being carried out in 12 cities. By 2013 nationwide convergence will be a reality, according to the target set by the State Council. While opportunities abound for vendors and operators, there are significant challenges to policy makers as well as operators. Also, when global companies attempt to enter the converged service market in China, the harsh censorship system remains a considerable barrier to operate in the newly converged environment.

Regulatory hurdles

The uptake of converged services (telecom and media) has been hindered by the significant regulatory barriers between the two key regulators - the Ministry of Industry and Information Technology (MIIT) and the State Administration of Radio, Film and Television (SARFT). As a result of the diverse approaches and regulations imposed by the MIIT and the SARFT, there is low uptake of IPTV and mobile TV in China despite industry players' eagerness to offer these converged services.

As of 2010 the country had some eight million IPTV subscribers, covering only a handful of cities/provinces including Shanghai, Jiangsu, and Guangdong. Although in some big cities (Shanghai and Hangzhou) the growth of IPTV subscribers increased sharply, the development status of IPTV lags behind considering the potentially huge subscriber base of fixed broadband coupled with the significant growth of broadband and 3G mobile subscribers in the market.

As a result, regulatory reforms are needed to meet the target of the State Council. A new converged regulator integrating the MIIT and the SARFT should be launched in the near future to break down regulatory barriers and promote converged services. The move to set up converged regulators in Korea (2008) and Taiwan (2006) are good examples for China to learn from.

In addition, the first Telecommunications Act needs to become effective immediately. China has lacked an essential law for its telecom industry over the course of a 30-year debate. To strengthen the integration of the three networks and convergence between telecom and media at the legislative level, the early enforcement of the first Telecommunications Act will be crucial.

Competition between broadcasters and telcos will be intense in the broadband and value-added services (VAS) markets, particularly bundled services such as triple- and quad-play offerings, which include media and content services. A new state-owned national cable television network operator (China Broadcast Network Co) will be formed around September after the SARFT has consolidated the 1,000 regional radio and television networks. China Broadcast Network will play an important role in the integration of cable TV and broadband services and compete head-on with the three major telecom operator.

Telcos need to develop their own strategies and respond to the converged environment, particularly with new strategies to bundle media and broadband. In the near- and medium-term, the censorship of content will still be controlled by broadcasters and the SARFT. Telcos will need to use various approaches to expand their IPTV and mobile TV services, for example by intensifying their close cooperation with broadcasters and content providers under the current license mechanism and censorship system.

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