Optical/IP Networks

China's 'Big Three' Eye IPTV

The good news for North American and European equipment vendors: Chinese megavendors have yet to conquer IPTV. The bad news: They're working on it.

The "Big Three" -- which include Huawei Technologies Co. Ltd., ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) and UTStarcom Inc. (Nasdaq: UTSIE) -- are grabbing market share worldwide in numerous infrastructure product categories and have good prospects for further expanding their reach, according to a new report from Light Reading Insider.

Huawei, for instance, has become the No. 2 provider worldwide of DSLAMs (see Huawei Deepens DSLAM Penetration), and is closing in on the market leader Alcatel (NYSE: ALA; Paris: CGEP:PA). UTStarcom is the No. 2 vendor worldwide of IP DSLAMs, according to the report, titled China's Big Three Take On the World.

"If any doubts remained, Huawei's recent contract wins with BT demonstrate that the Chinese vendors are now a major force in the telecom equipment industry," says contributing analyst James Crawshaw in the report.

Table 1: Employees by Function, End 2004
Vendor Research & Development Sales & Marketing Manufacturing Administration
Huawei 48% 33% 10% 9%
UTStarcom 44% 41% 9% 6%
Source: Vendor reports

The Big Three now seem poised to leverage their strong positions in access gear and other infrastructure to move further into the integration and software aspects of IPTV deployments.

Huawei, ZTE and UTStarcom are each beginning to pitch “integrated” hardware, software, and integration solutions for carriers deploying IPTV. That pitch is so far being heard mainly by telecom operators in Asia.

To be sure, none of the vendors has deployed a proven, cohesive set of integrated hardware and software products needed to support IPTV rollouts, Crawshaw says in the report. Alcatel arguably comes the closest to having such a solution, with some 30 IPTV deployments worldwide. But the French supplier has now yielded to Microsoft on the software aspects of the solution (see Alcatel's IPTV U-Turn).

Furthest along perhaps is UTStarcom with its mVision end-to-end IPTV platform. The U.S.-based company has one announced IPTV deployment, a 12,000 subscriber initial deployment for the CLEC SmartTel Communications in Florida and Alabama (see UTStarcom Wins IP TV Deal). The company told analysts Wednesday it has 40 Chinese trials going and a “cumulative $100 million in IPTV contracts.”

In the midst of falling PAS handset sales in Asia, UTStarcom hopes that sales of its IPTV solution will help bolster the company’s performance during the next few years, according to CEO Hong Lu.

Early this year, ZTE signed a contract worth more than $20 million with Atlas Interactive, India's largest IPTV carrier. ZTE, which includes Microsoft's middleware in its telco TV offering, will reportedly supply the infrastructure, software and integration services needed to deploy a new IPTV network in India, in a deal valued at $1 billion (see ZTE Wins Triple-Play Deal in India and IPTV Tidbits: MS, China & More).

Huawei has perhaps the least penetration into IPTV systems of the Chinese suppliers, although it has a reseller agreement with IPTV platform supplier Tut Systems Inc. (Nasdaq: TUTS). (See Huawei to Resell Tut's Gear.) Under the agreement signed last month, Huawei will sell Tut's Astria Content Processor, but no deployments have been announced.

Increasingly, IPTV is being seen as a key driver of triple-play deployments around the world (see Video May Drive the IP Star). "We are expecting about 3 million lines of IP DSLAMs for 2005 and obviously, that is mostly back-end-loaded as we start to see some more IPTV,” Alcatel COO Mike Quigley said on a recent earnings call with analysts. “People are getting ready for IPTV rollouts.”

Regardless of their slow entry into IPTV solutions, the low prices and increasing cache of the Chinese insurgents are keeping the CEOs of Western incumbents up at night.

Huawei, UTStarcom, and ZTE all have decidedly international aspirations and detailed plans for gaining market share in both hemispheres (see Vendor Credit Lines Reel in Deals and Could Huawei Buy Marconi?).

Table 2: Internationalization of Chinese Vendors
Metric Huawei UTStarcom ZTE
China Sales, 2001 ($M ) 2,047 566 1,091
China Sales, 2004 ($M) 2,307 2,133 2,010
CAGR 4% 56% 23%
Source: Vendor reports

"While China's vendors have typically had initial success in the developing countries of Asia and Africa, increasingly they are looking to compete on the Western vendors' home turf," the Light Reading Insider report says.

— Mark Sullivan, Reporter, Light Reading

China's Big Three Take On the World is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900. To subscribe, please visit: www.lightreading.com/insider.

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