The Issues and Challengers Facing Tri-network Convergence:in the Chinese Media Landscape

by Hu Zhengrong HONG Li

Abstract: On July 1st, 2010, 12 cities and regions were finally selected by the Chinese government after several rounds of debates and delays to take part in the country’s three-network convergence trials.[1]The planned network convergence project will enable telecoms and broadcasting companies to deliver IPTV, mobile TV, telephone and Internet services over a unified network. This state-level push is seen as the beginning of the breakthrough of barriers between industry-specific regulators. The intention to avoid overlapped investments, to innovate the media industry and provide cheaper service to customers is more than possible, but the difficulties facing the two most vibrant competitors in China-telecom players under the supervision of the Ministry of Industrial and Information Technology (MIIT) and broadcasters under the State Administration of Radio Film and Television (SARFT) are mounting. The fact that China has the world’s largest number of network users (Internet 384milion, Mobile line 747 million, Fixed line 313million and Cable TV 174 million)[2] makes it the an attractive media market for industry players, all aiming for their piece of the action.. This paper aims to give a general account of the background of three-network convergence in China, the current advances pushed by the authorities and industry at different levels, as well as the implicit policy approaches for the near future.

1. Overview

The idea of tri-network convergence (San Wang Rong He) in China was officially proposed at the Fifth Plenary Session of the Party’s Fifth Central Committee twelve years ago. Subsequently it was listed in the 10th and 11th five-year plans, but no substantial steps were taken regarding its implementation. The separation of operation and regulatory systems among broadcasters, telecoms and Internet players has hindered convergence in the media industry, as well as being a burden on consumers.

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There are three main factors driving convergence: technological innovation, economic prospects and political will. A decade ago technology was not developed enough to support the provision of multimedia services, let alone innovative ones and much focus was placed on intra-industry reforms. For example, China’s telecommunication industry has undertaken tremendous changes in scale and market orientation since 1998. Accordingly, when China streamlined its telecom industry in 2008, by cutting the number of its operators from 6 to 3, it was seen as a success of the basic integration of the telecom networks and the Internet; the solid foundation of the tri-network convergence. Finally, it should be noted that market demand was nothing like on the scale that it is today.

In theory, the integration of the networks should break down the traditional boundaries between media rivals and bring China’s customers benefits from innovative services, higher quality end-user experiences, all at significantly reduced prices. On Jan 13 2010, at a the State Council meeting, Premier Wen Jiabao started to accelerate network convergence by allowing telecoms carriers, television broadcasters and Internet firms to enter each other’s respective fields to provide services. The meeting also produced a timeframe to foster network convergence. From 2010 to 2012, the project will be rolled out in several cities for trial, before nationally implemented from 2013 to 2015.

2. Recent factors causing convergence

There are at least three factors driving the recent advance of the convergence. They are:

1) Government support. The meeting presided over by Wen Jiabao on Jan13th was generally seen as historic moment in the advance of the tri-network convergence but the real change came earlier in 2008 when broadcasters, encouraged by the State Council, began to digitalize the TV industry and introduce value-added telecoms services. Unfortunately the digitalization process proved technologically difficult, was chaotically regulated and, much worse, many problematic vested interests were tightly held by local broadcasters. Broadcasters were thus forced to turn to the government for supportive policies in maintaining content.

2) Industry response. Although still shadowed by regulatory ambiguity, both broadcasters and telecoms players remain optimistic about the State Council’s plan and immediately set about developing strategic projects to take a larger slice of the cake, estimated at upwards of 688 billion Yuan. On Mar 12th, at the close of the NPC and CPPCC meetings, Mr. Li Yizhong, the minister of MIIT told journalists, ‘Three-network convergence is a trend of social development. In the past ten years, preliminary experiments such as CMMB mobile TV services and IPTV have set a good foundation for the convergence of the three network industries. We need introduce a technical standard at either national or industrial level to strengthen convergence. Fortunately, the framework for this technical standard is under way for mobile TV and digital TV and will be a great experience nationally.’ [3] In the following months, each industry players proposed their own plans for convergence. After several rounds of rejection from the work group led by the State Council, the final list of pilot cities were unveiled on July 1st.

3) Increasing market demand. As new technological innovations emerge and existing technologies improve, end users become more demanding. They expect to enjoy simpler products and services at lower prices, as well as better quality and more diversified choices. With an estimated value of 688 billion Yuan, industry players will waste little time and wisdom in transforming businesses to meet their customers’ needs.

3. The challenges facing the convergence

1) Monopoly issues. Monopoly issues have occurred in both telecoms and broadcasting industries. Broadcasters have long had a duty to self-regulate their content, accordingly it was completely predictable that Guangxi telecoms’ move into the broadcasting sphere through the vehicle of Guangxi IPTV was dubbed illegal by the official regulator. On the other hand, telecoms monopolies in broadband networks have hindered other players from gaining access. Currently the number of China’s broadband clients is over 1000 million, but telecoms operators occupy over 97% of the market with only 2% from within the broadcasting industry, a huge contrast when compared with the American situation where the ratio for broadcasters and broadband operators is 4:3. Fu Fengchun, an expert on the convergence work group emphasized, ‘At the moment, asymmetrical entry is more realistic and fair, especially with regards to protecting broadcasters. A typical example is from Tianwei Video, which has only 170,000 clients- reduced from 250,000 five years ago when it took its first steps into the broadband market.’ [4]

The challenge facing broadcasters is the need to unify the thousands of networks all over the nation as well as to manage the market transformation. Balancing the interests of both national and local interests is also a challenging issue. With the supportive policy from the State Council the unification of network is possible. However, few accurate predictions can be made when the transformation from the state-planning model to a market-oriented model is being implemented. ‘No experience can be followed since broadcasters have just set about shifting from administrative institution to modern management, so mistakes are unavoidable during the transformation.'[5]

Telecommunication players are positive in predicting the advantages of increased bandwidth and the marketing experience of broadcasters. A survey shows that most people are receptive to the value of services delivered by telecoms operators. Forty percent of mobile subscribers are willing to pay higher fees for better services, such as games, TV, or music on the go. Some popular blog sites, or user-created content-hosting portals, are welcoming 10,000 to 20,000 new subscribers every single day.. Analysts, however, pursue a different policy direction,. When the first official license of network TV was issued in the favor of CCTV (China Central Television), private capital began to temper its enthusiasm. The supportive capital alone will not guarantee the engagement of telecoms in content production, which has long been an area strictly censored by the government.

It is worth noticing that the previous goal to upgrade 90% of clients to 2M bandwidth by the end of 2010 has doubled to 4M, since the State Council started the convergence plan. This implies that telecoms will continue to extend their technological advantages, while in weaker area they adopt a rather more modest attitude evidenced by Xi Guohua’s (the Vice Minister of MIIT) speech in a seminar on convergence held by MIIT , ‘both telecoms and broadcasting sectors have strengths and weaknesses, so it is vital is to surpass rather than merely imitate. What we need to do now is to digest the official documents issued by the State Council so as to contribute to the national plan for 3-network convergence. We should cooperate with local broadcasters when planning the timetable of platform construction of content production and supervision.’ [6]

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2) Regulatory issues

Given that telecoms, broadcasting and Internet industries are subject to different regulatory bodies, breaking down the monopoly in their own territory is hard work for regulators. Some believe that an umbrella regulator, that would take charge of the country’s telecom and media industries, should be constructed along the lines of the US Federal Communications Commission. ‘A special work party to coordinate and supervise different departments involved during the convergence is needed.’ [7] Many industry analysts, however, believe convergence and the establishment of a new regulator will not take place until after a new telecoms law is issued.[8]

A special work group led by Zhang Dejiang, the deputy prime minister, was established early this year to coordinate between the telecoms and TV sectors, but it is far from the legitimate body needed to hold power in the industries. How things play out in the end will depend on the detailed design of the new regulatory framework. That is still up in the air and so far nothing substantial has been done to resolve the long-standing conflict between the two regulators that govern the sectors. Only if appropriate policy steps are taken in good time will it be possible to meet the five-year timetable.

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3) Technological issues.

On the surface convergence only became possible as a result of fundamental changes in technology of the past decade, which have transformed the market dynamics of the telecommunication, media, Internet, hardware, and software industries. The development of new technologies has enabled the fixed and wireless worlds to come together. These technical developments are making possible the transport of high-quality/high-definition audio and video streams onto IP networks accessible from both fixed and wireless devices. Some experts, however, worry more about technical standards in China. A big contrast can be seen between the telecommunication and broadcasting sectors. While the former has benefited from an open attitude towards technical standards and flexible marketing models, the latter suffered from confusion regarding these standards The different standards have contributed to the failure of the digitalization of TV undertaken by broadcasters, leaving marketing much less dynamic than telecommunication. Even in the telecoms sector where bandwidth is traditionally strong, more investment is still desperately needed to adjust the network appropriately. Thus with both industries planning to reconstruct the network waste is inevitable, and what’s more worrying is that on most occasions it is the consumers who will pay for that waste.

Conclusion

In its Eleventh Five-Year Plan, China has defined the goal of accelerating the convergence of the telecom companies, Internet players, and cable TV networks, in order to strengthen the construction of the information infrastructure, such as broadband communications networks, digital TV networks, and next generation Internet. At the beginning of the Twelfth Five-Year Plan, China has chosen 12 cities as trial sites to start converging services. Then from 2013 onwards, the convergence services will be rolled-out nationally. Ultimately to implement all these changes, a restructuring of the regulatory environment is needed. The governance structure and power sharing of organizations such as the Ministry of Industrial and Information Technology (MIIT) and the State Administration of Radio, Film, and Television (SARFT) will need to be redefined, with a redistribution of roles and competences to ensure there is no overlap of authority that could hinder the development of convergence.

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Consumers’ interest and national information security should take priority of consideration when planning this regulatory framework. ‘For common consumers, the simplest example of network convergence is the integration of the mobile phone, TV and computer. In the future, people can use a mobile phone to watch TV and surf the Internet, use a TV to phone other people, and go on the Internet or use a computer to phone other people and watch TV,’ said Zeng Jianqiu, a professor at Beijing University of Posts and Telecommunications. Such a picture is not just the hope of consumer, but represents the freedom of choice for the consumers. Whether they are willing to pay more for better services, and what the precise mix and shape of these services will take remains to be seen.

[1] The first pilot cities include: Beijing, Dalian in Liaoning Province, Harbin in Heilongjiang Province, Shanghai, Nanjing in Jiangsu Province, Hangzhou in Zhejiang Province, Xiamen in Fujian Province, Qingdao in Shandong Province, Wuhan in Hubei Province, the region of Changzhutan (including Changsha, Zhuzhou and Xiangtan cities) in Hunan Province, Shenzhen in Guangdong Province and Mianyang in Sichuan Province.

[2] Respectively from CNNIT, MIIT, MIIT, SARFT. All figures are up to 31st Dec 2009

[3] http://tech.sina.com.cn/t/2010-03-17/20183955355.shtml

[4] http://tech.sina.com.cn/t/2010-04-06/05104022684.shtml

[5] Wu Chunyong, china broadcasting network.

[6]http://miit.ccidnet.com/art/32609/20100713/2113313_1.html

[7] Yu Guoming, deputy dean of the School of Journalism and Communication of the People’s University of China.

[8] http://www.ft.com/cms/s/2/d548c88a-0871-11dc-b11e-000b5df10621.html

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