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May 12, 2016

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Home » Business » Biz Special

New telecom licensee: hype and hurdles

By Zhu Shenshen | May 12, 2016, Thursday | Print Edition

EDITOR’S note:

INTERNET Plus, a concept highlighted in the government work report delivered by Premier Li Keqiang at the annual session of the National People’s Congress in Beijing in March, is pushing the boundaries of China’s traditional industries. Nowadays, enterprises across the country are embracing changes by incorporating advancements in the Internet and related technologies into their business models. In a series by Shanghai Daily, we explore how this concept is reshaping our world.

When China issued a new license to China Broadcasting Network, the move was hailed as a big deal. But much of the hype over the nation’s fourth telecommunications carrier may be premature.

The new carrier is supposed to break the long-term monopoly of the big three carriers, China Mobile, China Telecom and China Unicom, and usher in competitive prices and packaging of telecommunications services.

Consumers also expected new 4G numbers and services as well as big discounts.

These expectations put the cart before the horse.

With its new license, state-owned broadcaster China Broadcasting Network, known as CBN, is allowed to operate Internet access and telecommunications infrastructure services nationwide, through its China Cable Television Network Co subsidiary.

The Ministry of Industry and Information Technology said the new entrant would make the industry more market-oriented and boost technology integration between broadcasting and telecom industries.

“A new carrier will boost market competition and technology innovation and integration,” the ministry said after issuing the new telecommunications license to a new player in a decade.

However, CBN at present lacks the capital, the scale and the marketing nous to jump into the market as a serious competitor.

“We do not think CBN will become a major threat to existing telecom operators in the near term, unless CBN can resolve its own financial bottlenecks and complete the process of consolidating national television and broadcasting networks,” Nomura analyst Huang Leping wrote in a research note.

A look at CBN’s circumstances seem to bear that out.

Business limitations

According to the ministry statement, China Broadcasting Network is allowed to operate basic telecom services, including broadband and Internet data. However, it is not allowed at present to engage in wireless businesses like voice calling and 4G services.

By comparison, China Mobile, China Telecom and China Unicom are full-scale carriers with combined subscribers of more than 1.2 billion mobile users.

To offer consumers better broadband services with the fiber-optic technologies used by its three competitors, CBN will have to invest heavily in network upgrading, which it can’t afford, said Xiang Ligang, an industry observer.

The wireless business is already fiercely competitive, eroding profitability at all the carriers.

In the first quarter, market leader China Mobile’s profit slightly grew to 23.9 billion yuan (US$692 million), while China Unicom’s profit decreased 85 percent from a year earlier to 480 million yuan.

Diminutive scale

CBN was created in 2014 with registered capital of 4.5 billion yuan, far below that of its three rivals, which each have registered capital of least 200 billion yuan and are listed companies with easy access to money for business expansion and network upgrading.

There are now about 230 million cable TV subscribers in China, but only 15 million of these subscribe to broadband via a cable provider.

The three existing carriers now control more than 90 percent of the nation's fixed broadband market, according to Bernstein & Co, with 200 million users nationwide.

Internal disarray

As a national broadcaster, CBN is plagued by a series of problems that require internal consolidation. Its subsidiaries in some provinces and major cities like Beijing have developed rapidly and even listed on the stock market. In other areas, development has lagged. Some branches have become quite independent.

It will take time for CBN to grab the reins and consolidate itself into a unified and manageable national network.

By comparison, China Mobile, China Telecom and China Unicom have clear internal structures and delineated local branches, which makes them more market-oriented and allows them to respond quickly to market changes.

The government views CBN as part of its Broadband China project, which aims to improve IT infrastructure nationwide and integrate telecommunications and broadcasting networks.

Under Broadband China, the nation seeks to double average broadband network bandwidth to 20 megabytes per second by 2020.

A key plank in the project is to lift broadband speeds in the rural areas, where CBN has wide coverage.

At the same time, the Chinese government wants to integrate two networks into one. That means consumers could pay one bill for both TV programs and broadband services.

CBN does have some unique advantages in content and spectrum.

It can now use its new license to expand into broadband, smart TV and online video services, said Aijian Securities in a note.

Meanwhile, CBN holds a 700 MHz spectrum resource, which is called the best of the 4G technologies. Compared with the current spectrum used by China Mobile, the 700 MHZ system saves an average 60-70 percent of the cost of building a 4G base station.

Without a wireless business, CBN can use the 700 MHZ technology to switch resources with the three carriers. But now, it is under question.

Biz Special


 

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