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Video services

Alcatel's Chinese IPTV Coup

Alcatel (NYSE: ALA; Paris: CGEP:PA) has broadened its relationship with lynchpin content owner Shanghai Media Group (SMG) by setting up an IPTV lab in Shanghai with the Chinese company (see Alcatel, SMG Set Up IPTV Lab).

The two companies, which signed a strategic partnership agreement in June 2004, will combine their hardware and software (from Alcatel) and media content (from SMG) to develop and test IPTV services and develop capabilities, such as digital rights management packages, for Chinese service providers. The lab will be part of the Asia Pacific IPTV Solution Center set up by Alcatel Shanghai Bell Co. Ltd. in April this year.

SMG is a strategically important partner for Alcatel as it is currently holder of the only official IPTV license so far issued by the Chinese government's State Administration of Radio, Film and Television (SARFT). It is also working with China Telecommunications Corp. (NYSE: CHA), a key Alcatel customer, on the carrier's IPTV trials (see China Telecom Launches IPTV, China Telecom Deploys Alcatel's VPLS , Alcatel Lands China Telecom Deal, Alcatel Wins China Telecom Deal , China Telecom Picks Alcatel Gear, Shaanxi Telecom Picks Alcatel's Analyzer, and China Telecom Selects Alcatel ).

China is becoming an increasingly hot and important market for Alcatel and its partners (see Alcatel Invests in China, Alcatel, Sylantro Land Unicom Deal, Alcatel Wins Deals, Alcatel Lands Shanghai Metro Deal, and Alcatel Wins NGN Deal in China).

But will China necessarily be a gold mine for IPTV and triple-play solution providers? The potential for deployment is there, certainly. China has nearly 330 million fixed lines and, with 30 million broadband subscribers, the broadband uptake is growing fast. And while SARFT has issued only one license, the major carriers are running trials and testing services and technology with a view to gaining full regulatory approval (see China Shapes Up for IPTV Boom).

But there are doubts that a profitable business case for IPTV exists in China. In its press release, Alcatel says it and SMG will "carry out in-depth studies on various business cases for IPTV so that comprehensive consulting services can be provided to help operators launch profitable IPTV services," but major vendors, including Alcatel, say it's already proving tough to make the sums add up.

At a special session on the topic organized by Information Gatekeepers Inc. (IGI) at this year's Supercomm trade show in Chicago, Alcatel's Asia-Pacific marketing director Estelle Chen said that a China Telecom survey had found that 70 percent of its subscribers believed they were likely to sign up for IPTV services. One of the major stumbling blocks for introducing such services in China, however, was the lack of a compelling business model. "Technology is not a big issue," Chen said.

That sentiment was backed up by John Yu, a senior VP at ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), who said the biggest issue facing the Chinese carriers was how they would manage a return on their network investments. He noted that China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906) was asking subscribers to pay about $6 per month for its trial services, but that was three times higher than the monthly fee for television and video services being charged by China's cable operators.

With those sorts of competitive fees, China's telecom operators are going to find it difficult to financially justify large capital expenditure outlays on new video systems and network upgrades to deliver a service that could have a negligible impact on operating margins.

— Ray Le Maistre, International News Editor, Light Reading

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