Cable Consolidation Gets Money, Licenses 中国有线电视行业整合扑朔迷离
A recent flurry of new reports is hinting that a state-led consolidation of China’s fragmented cable TV industry is moving ahead, but also that the campaign may be meeting with some resistance from provincial governments reluctant to cede assets to a Beijing-based national operator. Despite that resistance, I suspect that this consolidation will probably succeed in the end since Beijing really wants it to happen. But the new operator may have to cede a lot of autonomy to its various provincial level units, meaning it could have difficulty competing with China’s 3 major telcos which have stronger central coordination.
Beijing’s latest drive to consolidate the cable TV sector began in earnest last year, and is driven by a number of reasons. Perhaps most importantly, Beijing wants to create a national competitor that can offer wire-line broadband Internet services to rival the current duopoly of China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Secondarily, Beijing also wants to boost its homegrown media content-making industries, and this new national cable operator would help that drive by providing an important new channel for media content makers to deliver their products to consumers.
Let’s have a look at the latest news bits from the last week, which show that the consolidation is moving forward but may also be meeting with some local resistance. The biggest of the bits has media reporting that the Finance Ministry is providing the new national cable operator, called China Radio and Television Network Co, with 4 billion yuan, or about $630 million. (English article) Such funds are important not only for the national operator to purchase assets from regional cable companies, but also for the building of necessary infrastructure to upgrade the nation’s cable TV networks so they can handle more sophisticated functions like broadband Internet access and video on demand (VOD) services.
At the same time, media are also reporting that provincial cable network operators in Hunan province, Beijing and Shenzhen have recently received licenses from the telecoms regulator to offer Internet services. Those licenses apply to Beijing-based Gehua CATV Network (Shanghai: 600037) (English article); Hunan Broadcast and TV Intermediary (Shenzhen: 000917) (Chinese article); and Shenzhen-based Topway (Shenzhen: 002238). All 3 of those are publicly listed companies that have already consolidated and upgraded their networks at the city or provincial level.
The fact that the Ministry of Industry and Information Technology (MIIT), China’s telecoms regulator, is starting to grant Internet licenses at the provincial level is an interesting signal, as it indicates that these publicly listed companies want to immediately start offering such services and have the connections in Beijing to get what they want. In a more ideal world, these companies should wait for the industry to be consolidated first under the national operator, and then let that operator receive a single national license to offer Internet and VOD services.
This more fragmented granting of licenses hints at the regional influences that will still be trying to exercise power after a consolidation, even if they are forced to join a national operator. Those kinds of influences could significantly slow or even derail the national consolidation that Beijing wants. And even if the consolidation succeeds, these local influences could continue to wield big power in their home provinces, seriously limiting the ability of the national operator to create and execute nationwide strategies and campaigns.
Bottom line: China’s assembly of a national cable operator is receiving needed funds, but is also facing resistance from local influences that could derail or seriously limit the consolidation campaign.
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