In 2010, the Chinese government announced its network and industry convergence plan for the integration of China’s telecoms, Internet, and broadcasting networks. The plan will create triple-play business opportunities for cable operators. They are preparing to take advantage of their massive cable-TV user base and content dominance to exploit this new opportunity.
However, there are still challenges ahead, such as a lack of funding to build a national network and complex organizational restructuring, which cable operators must tackle before they lose their exclusive right to operate triple-play services in five years’ time.
China’s cable operators should have a natural advantage over their telco counterparts in the pay-TV market. China’s cable-TV industry has a user base of 180 million households, with 60% household penetration in 2009. In many countries pay TV is still a premium service and a major source of revenue. It can therefore command a higher ARPU as an individual service than fixed voice or broadband access. As a result, we believe Chinese cable operators can use their position in the TV ecosystem to compete with the three major telcos. In particular, we suggest that cable operators need to increase TV subscribers and TV ARPU over the next five years before the full entry of telco operators into the pay-TV market.
The broadband market in China still has a low penetration rate and strong potential for growth. Broadband access is therefore the first new market for cable operators to pursue. In contrast, the fixed voice market is in decline, so we recommend that cable operators enter this market once they are established in the broadband market. This will require relaxation of the current price control mechanisms for pay TV, as well as an effort to develop and deploy new value-added services.
A bundling strategy is the key to success
Bundling is the most effective way to obtain subscribers and expand the market. A successful double- and triple-play strategy is based on a clear understanding of the customer. Cable operators can use their TV customer database to sell broadband and voice services in double- and triple-play offers to existing customers, attacking traditional telco markets.
Some cable operators have already begun to sell double-play bundles in certain cities, providing evidence of the potential of cable-TV double play. Competitive prices and attractive content will be the main factors attracting users to the cable operators.