China Reshuffles Its Broadband Pack

With an economy that's still growing, broadband penetration of just under 11 percent and ambitious targets on the roadmap, China's broadband market has become the global sweet spot for fiber access growth.

And it's set to become more competitive, too.

The country's two main fixed line operators, China Telecom Corp. Ltd. (NYSE: CHA) and China Unicom Ltd. (NYSE: CHU), have been pumping significant capex into their fiber-based broadband rollouts in the past few years and continue to do so: ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) has just announced a 4 billion yuan renminbi (US$629 million) deal to supply China Telecom with PON technology that, it says, accounts for 40 percent of the operator's 2012 broadband procurement; while Alcatel-Lucent (NYSE: ALU) has also picked up two major deals from the same operator in the past month. (See ZTE Wins Major FTTX Deal From China Telecom, China Telecom Deploys AlcaLu's IP Gear and AlcaLu's APAC Action.)

On the back of those sorts of investments, Ovum Ltd. predicts that China’s FTTX subscriber base will reach 76.5 million in 2015, accounting for more than half of all FTTX subscribers worldwide.

Now China's broadband market is about to be reshaped to help the government reach its ambitious rollout targets. The Ministry of Industry and Information Technology (MIIT) is expected to announce a national broadband plan in September, local industry executives say.

Under a new five-year plan, the goal is to reach 370 million fixed broadband connections (of any type) by 2015, with at least 20Mbit/s downstream for urban households and 4Mbit/ss in the countryside. At the end of May, China Telecom and China Unicom between them had around 143 million broadband connections.

The new plan should set down in more detail the competitive arrangements for getting there. It seems almost certain that two new licenses will be awarded, one to wireless heavyweight China Mobile Ltd. (NYSE: CHL) and one to the new national cable company, China Broadcast Network TV Co (CBNTV).

China Mobile took control of China Tietong, the fiber spin-off from the railways sector, in the industry restructure of 2008, since when the mobile giant has been officially barred from selling broadband services except those delivered by its TD-SCDMA wireless network.

But the operator is already selling fixed broadband services under its own brand in Shanghai, leveraging the Tietong network, while still seeking its own fixed network license.

According to Chinese press reports that is all but a formality for China Mobile, despite the expressed concerns by China Telecom.

China Mobile chairman Xi Guohua told reporters last week that as a NYSE- and HKEx-listed company, selling services through a subsidiary means continual reporting of connected transactions. But he added that even if Mobile doesn’t get the license, it will continue selling broadband through Tietong.

Whatever happens, China Mobile is ramping up its broadband plans. Last year it issued a tender for 8 million optical access lines for Tietong, and increased that to more than 11 million lines this year.

The market has been further disrupted by a complaint against China Telecom and China Unicom regarding alleged abuse of market power, the first ever against a state-owned enterprise under China’s new competition law. That situation, which emerged late last year, may also have helped hasten the end of their duopoly.

An inquiry is still underway, but the biggest beneficiary appears to be the MIIT’s biggest rival, the film and TV ministry, SARFT. It has won the right to offer triple play services through its subsidiary, CBNTV, which was formed from the consolidation of China's cable operators.

While CBNTV is expected to win a new broadband license, Ric Clark, Alcatel-Lucent's Asia/Pacific vice president for strategy, said he expected the cable operator to rely on leased capacity from the big two.

— Robert Clark, contributing editor, special to Light Reading

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