China: A New Power in Worldwide IPTV Deployments

Capitalizing on an Embedded Solutions Play

Despite early skepticism due to tight controls over licensing, immature business models, and various technical concerns including the lack of standards, Internet protocol television (IPTV) is taking off in China, fitting in nicely with the government's long-term plan to unify broadband, Internet, and television. While some still argue that even with China's 360 million TV and more than 20 million broadband users to provide a substantial potential subscriber base, overall user awareness and acceptance has been slow, and at best, the market will only grow gradually, albeit steadily. Different numbers have been forecast, projecting the Chinese IPTV market to range from 5 to 17 million subscribers by 2010.

With its huge population, China is easily the world's largest market for consumer-related products. The telecom market is no exception—especially when the government gets itself behind promoting an industry such as IPTV. Foreign as well as domestic members of the IPTV ecosystem have their eye on the Chinese market as another highly lucrative channel for product as well as service revenue. According to Heavy Reading, a market research company with expertise in the telecommunications industry, telecom capital expenditure on IPTV in China more than tripled during the three-year period between 2006 and 2008, growing from US$6.3 to $22.7 million.

Betting on this trend, fixed-line operators and broadcast and cable TV providers are rushing to ramp up introduction of products and technologies to bring IPTV service to the major markets across China, in many instances partnering with each other to provide a complete end-to-end value proposition. And as they do, opportunities are created for core technology and middleware vendors to take advantage of the impending demand. Already, the market is seeing a proliferation of IP set-top boxes from large and small players, including UTStarcom and ZTE, with 90% of set-top boxes being sold to consumers through service bundles offered by their telecom carriers. Content providers are equally attracted by this market force. Major media players such as Shanghai Media and Entertainment Group (SMEG) and EastTV have been quick to align themselves with the carriers.

Chinese IPTV industry promoters are methodically tackling key challenges to make IPTV a mainstream commercial force. The regulation barrier has been minimized with the government's move earlier this year to disassociate itself from the operations of local cable companies. On the technical front, the challenge will rest heavily on the middleware, specifically the networks and set-top boxes.

Demand on the box's CPU cycle is a significant issue, resulting directly from the rich set of applications needed to grab consumers and maintain IPTV's value over satellite and cable TV. The quest for better user-interface experience will further heighten the need for set-top boxes to use processors that can deliver robust performance and headroom to accommodate and handle applications such as electronic program guides, video on demand, digital video recording, and other real-time services that include interactive shopping and gaming.

As for content provisioning, by law, Chinese telecom carriers are not permitted to own the content that gets bundled into their service offerings. Instead of being a deterrent, this "restriction" has become an economic motivator, driving programming providers to aggressively and actively participate in the IPTV ecosystem and align themselves with the telecom carriers. Programmers see the prospect of big revenue returns as China moves to become the leader in the global IPTV market. Both foreign and domestic capital continues to flow into Chinese IPTV ventures, fueling deployments across a vast landscape and making a mature and robust end-to-end IPTV solution a reality in the not-too-distant future.

Global awareness is building, as the Chinese IPTV industry begins to promote itself as the market's world leader. Just a few weeks ago, UTStarcom hosted IPTV Tour 2007 in Hangzhou, China. To the assembled audience—many of whom were foreign analysts and members of the media—the chairman and CEO of its Chinese unit predicted that China will become the world's leading IPTV market, with a subscriber base reaching 1 million by the end of the year. UTStarcom recently deployed its IPTV system in Harbin and Shanghai in partnership with China Netcom and China Telecom, respectively, and with Shanghai Media Group (SMG) providing the programming.

Collectively these deployments have generated 262,000 subscribers to date. Adding them to the 750,000 generated by the PCCW Ltd. (the largest telecommunications enterprise in Hong Kong) deployment in Hong Kong in 2003, the sum already exceeds what was predicted by UTStarcom for the end of 2007. Boasting its soon-to-be IPTV market leadership is not an over-statement. China is capitalizing on the 2008 Olympics in Beijing to showcase its IPTV achievements and expects the event to return a nice increase in subscriber sign-ups, further securing its world market dominance.