Video becomes a basic service in China

Sherrie Huang/Analysys Mason
24 May 2016

Video emerged as an important subject at Huawei’s Global Analyst Summit (HAS) held in Shenzhen, and the vendor also organized a side event in Chengdu to showcase the work of their partner Sichuan Telecom.

Huawei and its telco partners now view video as a fundamental telecoms service, rather than as a value-added service (VAS). In order to adapt to that change, operators must transform in several areas including network and platform construction, terminals, sales and marketing, and customer experience management.

Telcos face increasing competition from traditional and new players, and have been searching for “killer” applications to sustain their position, but the cash cows continued to be traditional voice and SMS, and then data, which are all regarded as fundamental services. The demand for data relies on video, which has come to be seen as a fundamental service as a result.

According to our traffic forecast, connected TVs — in particular 4K TVs — will be a major driver of fixed IP traffic, which still accounts for well over 90% of IP traffic worldwide. Connected TV sets’ share of overall IP traffic will grow from 29% to 41% between 2015 and 2020, and average data usage of over 200GB per connection per month on next-generation fixed networks is already quite common in developed markets.

Traffic will grow fastest in emerging Asia Pacific, particularly in China, where an ecosystem of network and device vendors and operators provides low-cost connected 4K TV. OTT video services such as Netflix and LeTV, as well as user-generated content are expanding their presence, and the fast growth of augmented reality (AR) and virtual reality (VR) is also driving bandwidth consumption.

Video provides an effective way to attract new subscribers, and service bundles with video as a key item, have been proven to help stabilize ARPU and increase customer loyalty, as shown in our connected consumer survey results. In addition to consumer services, enterprise usage of video (videoconferencing, surveillance, telehealthcare) is maturing. Video has become a fundamental telecom service, and its importance will continue to grow.

The telecom industry must prepare for the transformation of video from a VAS to a fundamental telecoms service. Telcos need to transform across several domains. The most obvious impact that video services have is the surge in network traffic, which continues to grow driven by the quality improvement and new forms of services, such as AR and VR. This surge requires sufficient capacity and bandwidth, and only a fiber-based network is currently able to satisfy that, reinforcing the view that fixed and mobile networks are complementary not substitutive.

Cloud infrastructure, content delivery networks, video broadcast, and multicast are also needed. New technologies such as big data are adopted to achieve customer/network insights and to drive innovation. That puts higher requirements for network planning, design, and deployment. Content is a key factor for success for video services, but is comparatively new to most telcos especially those in emerging markets. Hence, partnerships are very important and new business models need to be formed.

Sichuan Telecom is a subsidiary of China Telecom and operates in Sichuan Province, a key economic center of Western China. Sichuan Telecom faced tough competition from the other two full-service providers, Sichuan Unicom and Sichuan Mobile, in a commoditized broadband market. It suffered from a shrinking broadband subscriber base and revenue growth slowdown.

In response, Sichuan Telecom developed what it called its ‘012’ strategy: "0"-cost 4K IPTV, "1" fibre (FTTH), and "2" mobile connections. To support this strategy, Sichuan Telecom invested heavily in fiber network deployment, and had 16 million fiber ports in April 2016, accounting for over 80% of all broadband network ports in Sichuan.

Sichuan Telecom has also upgraded its IPTV platform in order to deliver high-quality services, and after it launched 4K TV at the end of 2014, all new set-top-boxes (STBs) support 4K. Its sales and marketing team promoted a new service bundle called Missing Home, which integrates several video services including IPTV and video conferencing, and the company has built an end-to-end system for delivery, installation, maintenance, and service provisioning to ensure satisfactory customer experience.

Sichuan Telecom has achieved encouraging results including stabilized ARPU, strong subscriber base growth and higher customer loyalty. It has become the largest IPTV operator in the world with 8.55 million IPTV subscribers. Sichuan Telecom expects its subscriber base to continue to grow in the near future.

Sherrie Huang is lead analyst for Analysys Mason.

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