Sichuan Telecom leads broadband charge

Huawei Technologies
13 Apr 2016

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Just a few short years ago, China Telecom Sichuan (Sichuan Telecom) was treading water in an undifferentiated market with increasingly finicky consumers. But the telco has managed to break the mold in China with 4K Ultra-HD content, delivered through an unprecedented fiber deployment. Subscriptions and revenues have followed. General manager Zhao Maiqing and deputy general manager Zhou Qingjiu have the details.

The "012" strategy

In 2013, Sichuan Telecom proposed its "012" transformation strategy, involving"0"-cost 4K Ultra-HD video, "1" optical fiber to the home, and "2" mobile phones. According to Zhao Maiqing, "We think that the 0 market is relatively easy to break into. Strategies 1 and 2 are realized through a 169 yuan ($27) service package, which allows users to enjoy Sichuan Telecom's IPTV and optical broadband services, as well as two smartphones."

Zhao also discussed the saturation of the Chinese smartphone market. Carrier expansion in this area is difficult, so China Telecom responded by bundling them with broadband. Zhao stated, "Telcos must reduce their churn rate and develop new subscribers. IPTV and optical broadband can greatly boost telcos' business development in the smartphone market. Our surveys found TV an indispensable terminal in the living room and a rigid demand for customers. If we could add IPTV service to our broadband-plus-mobile phone package, promotion would be much easier. After all, if we can't create new demand, we'll have to satisfy existing market demand to the utmost. So we chose IPTV, as Sichuan Telecom was thinking about differentiated competition. Today all carriers offer basically the same bandwidth package. Sichuan Telecom has an advantage in IPTV."

Zhao would later add, "Video is a basic telco service, but telcos cannot simply focus on innovation while ignoring pipe construction. We must first enhance network performance. IPTV service based on optical broadband is an innovative pipe service. Compared with pure pipe services, IPTV has a more intimate relationship with consumers, providing movies, TV series, and a wide range of other new services. Therefore, 10 million IPTV subscribers are worth more value than the same number of fixed broadband and telephony users. It is clear that video services can help telcos drive business development, increase revenues, and adapt to future changes."

With video now a basic service, Sichuan Telecom has carried out comprehensive transformation in terms of network planning, construction, operation and maintenance. A 4K Ultra-HD film online requires at least 50Mbps of bandwidth. Multi-screen, multi-room support of such quantities requires a broad network that is both speedy and capacious.

Copper out, fiber in

In 2014, Sichuan Telecom deployed optical broadband in 5,279 villages, and this no doubt helped make the "Sichuan Model" a part of the Chinese government's Broadband China initiative. According to Sichuan Telecom Deputy General Manager Zhou Qingjiu, "It is estimated that by the end of 2015, Sichuan Telecom will realize full optical network coverage of the entire province. Optical fiber users will account for over 90% of our total subscribers. Certain traditional switches will also gradually be replaced. As network bandwidth increases and application-types change, Sichuan Telecom's networks are being transformed from access-aggregation networks into content-bearing networks.

In addition to the enhancement of basic access networks, we must plan comprehensively in terms of video content distribution, involving the CDN construction, server clustering for video content bearing, the relationship between the playback subsystem and user distribution, as well as the playback support and VAS development."

Make way for 4K

According to Zhou, "We have done a lot in preparation for 4K video business, including cooperation with Huawei in terms of access network construction, feature design for service provision platforms, as well as 4K terminal and service development. As the video business requires quite different sales channels from traditional business in terms of customer experience and sales sites, we cooperated with numerous TV vendors to set up 4K video experience zones in locations where they sell 4K TVs (which are plentiful in China thanks to its thriving base of local low-cost manufacturers). We also worked relentlessly to aggregate 4K content. Although the 4K industry chain is immature, it is growing rapidly. Our service support and guarantee system also must adapt to video business development, which involves FTTH, the installation and debugging of 4K terminals, and the introduction and demonstration of 4K experiences during service delivery. In other words, 4K business promotion is comprehensive."

According to Zhao Maiqing, "At the end of 2012, Sichuan Telecom had only 700,000 IPTV subscribers and one million optical broadband users. By the end of this past July, our IPTV subscribers exceeded six million, with optical broadband users exceeding seven million. The last two and a half years have seen astonishing user growth, and a significantly reduced churn rate amongst mobile subscribers. The percentage of smartphone users is also increasing, as is the average traffic consumption per user. China Telecom‘s statistics show that from January to May 2015, Sichuan Telecom ranked first in terms of net growth of IPTV numbers, broadband, and smartphone users. We also achieved the fastest growth of primary business revenues."

What's more, Sichuan Telecom's TV value-added services (VAS) revenues tripled their 2013-levels in 2014, with Ultra-HD services estimated to have retained 700,000 subscribers in the same year.

Industry chain cooperation to expand the market

The lack of content is a big obstacle to the 4K industry. Sichuan Telecom plans to break this barrier through tireless work with industry partners from the second half of 2015 to jointly promote the development of the entire industry chain.

On the day Sichuan Telecom launched its 4K services, the telco announced the establishment of the Ultra-HD 4K Industry Alliance, which it co-founded along with Huawei, Sichuan Radio & TV Corporation, Chengdu Radio & TV Corporation, BesTV, Union Voole, Changhong, Hisense Sony, and Samsung. The alliance developed a set of business models and industry chain cooperation models, allowing all industry participants to proactively invest in 4K with their advantageous resources.

Sichuan Telecom has three types of partners across the 4K industry chain. Type 1 is the network and platform builders, including ICT solution providers such as Huawei, platform providers, and software and hardware service integrators. Type 2 is content providers. In additional to original iTV, the telco needs a richer variety of premium 4K contents to support 4K business development. Type 3 is smart device producers. For example, over half of all on-sale TVs of more than 50 inches are 4K-enabled. 4K terminals will only grow in popularity.

When technology and content is ready, appropriate business models will become essential to 4K popularization. Currently, most of Sichuan Telecom’s 4K content is movies and TV series. In the future, the telco plans to provide a wider range that adds education and health care to the equation. Furthermore, in addition to TV sets, Sichuan Telecom will deliver 4K functions and services on other terminal devices such as smartphones, tablets, and even wearables. When the subscriber base grows, telcos can devise more flexible interaction and business models, such as backwards-charging.

From July, Sichuan Telecom has started to sell 4K STBs. By the end of 2015, Sichuan will have over two million 4K STB users. As for 4K program introduction, Zhao thinks that telcos should share profits with the upstream industry chain. During market incubation, telcos should attract users by offering 4K content at relatively low prices, even free. Telcos can also subsidize the sales of 4K STBs. Sichuan Telecom intends to work with all industry partners to actively promote 4K development, thereby making Ultra-HD video content available to more users.

Zhou maintains that once 4K services are well established in the home market, there will be a growing demand for them in the enterprise market. For example, some hotels and restaurants deployed small-sized independent video-on-demand (VOD) systems a few years ago, but with low efficiency. Zhou thinks they‘ll be happy to upgrade, if telcos can bring standardization and customization to the video service equation. This would represent a vital first step of telco expansion in the potentially huge enterprise market, something Zhou is confident will happen.

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