Beijing Correspondent: China's journey into the broadband elite

By Beijing Correspondent Dr Lin Sun

In early 2011, China Telecom (CTC), the largest fixed-line operator, launched “Broadband Country-Op-Net Cities.” The goal was a ten-fold increase in download speed to 20Mbps in most urban households and 100Mbps for most businesses by 2015.

The plan is quite bold given the reality that most access today is DSL at about 1-2Mbps and many old buildings are not pre-wired for FTTH (fiber-to-the-home). China Unicom, CTC’s only rival, says it will deliver FTTH to all households in major cities by 2015. Beijing, for example, will have 70% households passed for 20Mbps in 2011, a claim that it looks unlikely to deliver with little time left for the year.

And FTTH is not the only game in town. In early December, Shanghai unveiled NGB (Next-Generation Broadband Network), available in a million households in the city. It is the first such service under the government’s State Administration of Radio, Film and Television (SARFT) department that competes with telcos.

As a pilot, NGB boasts 100Mbps bandwidth with services including 3D TV and other hi-def and interactive services such as video on demand (VOD), financial services, education, games and “smart home.”

These days, FTTH is all the rage in China, despite questions about actual speed and cost. According to the Chinese Ministry of Industry Information Technology (MIIT), China plans to spend RMB1.6trn ($254bn) between 2011-15 for a broadband makeover, of which 35% is earmarked for access networks.

And this does not include spending by operators, which should add hundreds of billions more. If everything goes according to the plan, MIIT estimates FTTH will pass 200 million households by 2015, or about 55%. To put it in perspective, 23% of households have broadband access in 2011, most by sluggish DSL. By one count, broadband in China is way behind many countries. In 2010, average downlink speed was about 1.8Mbps compared to the world average of 5.6Mbps.

Barriers

By the end of October, China had 150 million broadband users (most on DSL) and is adding about 2.6 million customers a month (excluding mobile broadband). Clearly, a large population base and inadequate services leave a huge void for FTTH, but that’s in theory; in reality, replacing DSL with FTTH turns out to be a tough battle on many unexpected fronts.

Some property companies do not allow digging up ground and laying down optical cable without paying hefty “entrance” fees. Many residents simply shut out cable installers from drilling holes over concerns about property damage. Others show little interest in higher speed services. Reports say only 10% of households passed by optical cable have installed an optical network unit (ONU) despite operators’ claims.

And there are other issues. For example, with FTTH, customers must keep their ONU switched on all the time because turning it off also terminates the regular phone line. The basic service will be lost if there is a power outage. This opens many risks in emergency when communication with the outside should fail, and fire hazard if no one is home for a long time. More power consumption will also prove more costly for customers.

China has many reasons to induct itself to the hall of ‘broadband elites’, but fundamental characteristics of a developing country have set back its ambition. For instance, demand does not grow in a vacuum, it is measured by ability to pay, whereas low income and/or perceived high cost can seriously depress demand.

In China, DSL is already thought by many as an expensive service relative to income, and now operators are trying to foist FTTH on users to wring more money. To dispel animosity, China Telecom and China Unicom offer free upgrade to FTTH for most DSL customers, and they can keep current plans for higher speed if they choose to bundle mobile service.

The dilemma facing FTTH is not so much about technology, but what benefit it can bring to the public. With the notorious turf battle between telcos and TV broadcasters, a higher bandwidth may become an empty promise if content is lacking, especially entertainment. Sure, FTTH can bring IPTV or 3D TV to a whole new audience, but the same content can be obtained from other sources like webTV or HD cable.

In addition, SARFT controls almost all TV programming and distribution in China. Lack of free market competition and government censorship leaves little choice for consumers, which is another obstacle to FTTH adoption.

Another issue that can slow down FTTH is virtual monopoly. In November, the government launched a probe into the practice of China Telecom and China Unicom in opening the country’s broadband infrastructure to non-telco entities. The two companies have denied any wrongdoing and called for the case to be closed.

We do not expect the drama to bring about major change regardless of the outcome. The real problem is that the two companies control the entire infrastructure, making any real competition a joke. In most locales, consumers have only one choice for broadband service as they did for DSL and will for FTTH.

There are some options such as cable TV operators and independent broadband providers, but they are never given a fair chance to grow in technology, service and funding. Who would use a company that does not have a customer service hotline?

We do not want to leave a bleak picture of FTTH in China, it is not entirely hopeless even under monopoly. For example, cost concern can be resolved as time ticks on and technology improves. Cost per broadband port will decrease when the number of access lines increases, so that when more people sign up for FTTH service, cost per user will be lower at a given data rate in a given locale.

China Telecom has promised to cut broadband charges by 35% in 5 years and China Unicom has made a similar pledge as a “face-saving” to the government probe. Ultimately, future price cuts will mostly depend on the number of FTTH subscribers, so customers will have to do their fair share if they want to see prices drop. On the other hand, operators can lose out if they are obsessed with ROI and profit not focusing on growth momentum.

Beijing Correspondent Dr Lin Sun

Lin Sun, Ph.D., has 25 years of experience in China´s telecommunications industry. His career spans switching and transmission technology, wireless, broadband and broadcasting. He was a senior executive for China at various companies and is now a consultant on investment, technology and competition in China.

Dr. Sun has published and spoken extensively on the telecom issues. He received a Ph.D. in telecommunications from the United States. Contact him here.

 

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