China Telecom, Unicom Rev Up IPTV 电信、联通大举进军IPTV市场
China’s 2 main fixed-line broadband carriers, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU), are revving up for a big push into the television market, in what looks like a smart play for a product area that may finally be mature enough to find an audience. My main concern for both of these companies lies in execution, especially for Unicom, which has shown a poor record for implementing new businesses due to organizational dysfunction at the management level. But let’s come back to that issue later, and focus first on the bigger picture that has China Telecom and Unicom putting out tenders for a combined 6.2 million set-top boxes since August as part of their drive to install their IPTV service in millions of Chinese homes. (Chinese article) That number by itself isn’t all too large, but it does seem to indicate that both companies could quickly order more boxes if they find strong demand for their product.
In terms of timing, it does seem like the market could finally be ready for such a product after several previous false starts. Both China Telecom and Unicom have been upgrading their infrastructure over the last year to handle the large amounts of data required for IPTV, which typically requires quite a bit more bandwidth than traditional Internet surfing.
Equally important is the rapid maturation of China’s content market. After years of lacking enough good content for a premium TV product, China is finally reaching a critical threshold that could finally see enough new and interesting channels available to convince consumers to pay a premium for IPTV compared with the modest fees they now pay for traditional TV service.
Helping to fuel the rapid rise in content are a growing number of Internet-based channels, including names like Youku Tudou (NYSE: YOKU), Sohu (Nasdaq: SOHU) video and LeTV (Shenzhen: 300104). The supply of compelling content is also being fueled by new Chinese production joint ventures involving big western names like DreamWorks Animation (NYSE: DWA) and Disney (NYSE: DIS), and a slew of new deals that will see other Hollywood studios also sell their films and TV shows into the China market.
From a marketing perspective, both China Telecom and Unicom both are in a strong position due to their current status as China’s main 2 suppliers of traditional broadband services. According to their latest data, China Telecom had 86 million broadband users at the end of August, while Unicom had 62 million. Many of those subscribers could quickly be converted to IPTV subscribers if either company can build and effectively market a compelling product to tap that demand.
So the question becomes: can either of these companies make such a product, and can they also market it? In addition, there’s also the issue of potential rival products, most notably from a national cable TV operators now being assembled through the consolidation of China’s many regional cable TV companies. (previous post)
In terms of developing and selling a compelling product, clearly the content exists for such a product and both companies have access to the technological know-how to create a product. I’m relatively confident that China Telecom could develop and market an effective product due to its relatively stable management and strong execution record. But I’m much less sure about Unicom, which has shown a strong tendency towards mismanagement over the last 2 years.
In terms of competition, both companies have a big head start over any potential rivals, and their status as the nation’s 2 major fixed-line broadband providers gives them an extra advantage. On the whole, I’d say to look for IPTV to become an important new growth area for both companies starting next year, though China Telecom is likely to see better results than Unicom.
Bottom line: China Telecom and Unicom should see strong growth potential from IPTV services in 2013, though poor execution could limit the product’s potential at Unicom.
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