Converging lines

Thanks a bundle...

China already has 320 million broadband users. Indeed, the internet is already so widespread that accessing it on a television or watching TV on the net may seem like a natural step. But it has radical implications for Chinese broadcasters and telcos. That’s why the topic of ‘convergence’ has suddenly become a hot one.

“The rise of the internet and the upcoming convergence between broadcasting and telecom networks in China will turn our industry upside down,” Phoenix TV’s CEO Liu Changle told the Financial Times this week.

Technology has already reached a point where it’s possible for one provider to offer television, internet, and telephone services – and officials agree that it makes most sense to pipe it via a single infrastructure.

But media and telecommunications are strictly controlled in China, and neither the Ministry of Industry and Information Technology, nor the State Administration of Radio Film and Television have been able to compromise on carving up their respective fiefdoms.

Premier Wen Jiabao wants to break the deadlock. At a meeting of the State Council in January, and again in his speech to the legislature this month, Wen promised the country would move forward on convergence. The State Council recently authorised a two-year trial period to test the technology in selected cities, and said that it would be implemented nationwide between 2013-2015. “It is the first time that key Chinese authorities have provided a clear timetable for the convergence of the three systems,” notes the China Daily.

“The project, if it made a substantial breakthrough, would fundamentally change the playing field for China’s telecom, internet and broadcasting industries,” explains telecoms expert Xiang Ligang, “But that’s also the reason why the advancement of the project has faced so many difficulties.” The losers could find themselves out of business.

Analysts predict both telcos and cable operators will upgrade their networks in the coming years.

At this point two of China’s main state-controlled phone networks have a huge advantage. China Telecom and China Unicom are already the country’s principal internet providers. China Mobile was later into the game, but it now also has a fibre optic network. So they face the smallest investment to upgrade their networks. Far from threatening their industry, the changes offer a massive new opportunity to dominate the cable TV business and earn the bulk of pay TV revenues.

Similar upgrading will be very expensive for broadcasters like Hunan TV (see WiC38), and without nationwide coverage it will be hard for them to truly compete.

“Who are the major players in China’s broadcasting industry?”asks Xiang, “Even China Central Television doesn’t have a nationwide cable network.”

So far, broadcasting regulators have tried to protect their industry from losing market share. During a 2005 trial in Fujian province offering TV over the internet, broadcasters persuaded local authorities in Quzhou to close down China Telecom’s service.

If convergence becomes law, some observers predict that China’s telcos could gain a near monopoly on distribution. Their market clout could see them poach cable subscribers with aggressively priced packages that ‘bundle’ internet, home phone and TV channels. Perhaps they’ll throw in a mobile phone too.

The government thinks consumers will benefit: bundled offerings may be cheaper than individual subscriptions. And convergence could also boost mobile TV – a technology that allows subscribers to watch programmes on 3G devices rather than just on TV sets.

But nothing can be taken for granted until the regulators’ turf war is resolved.

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