In 2012, the Chinese government announced a bold plan to improve the country?s broadband services by implementing fibre-to-the-home (FTTH) technology, which prompted major investments and a flurry of upgrades by equipment vendors and telcos. Less than two years later, however, ebullience has vanished and reality has fallen short of ambition.

home-fibre

According to the government?s plan, broadband-connected households should reach 250m by 2015, and fibre-to-the-home (FTTH) connections will be available to 200m households. The government also envisioned that most urban households would have 20Mbps or higher, with major cities at 100Mbps, and rural areas receiving at least 4Mbps. For 2013, the goal was to have 80% of urban households use on connections of 20Mbps or more.

Unfortunately progress is lagging, and the government has a lot of catching up to do if they are to meet targets and escape criticism. By the end of 2013, there were just under 190m households (or 20%) subscribing to fibre-based broadband, according to the Ministry for Industry and Information Technology. This is despite the fact that 84% of households in China have access, a disappointment to policymakers. The main reasons for the gap between access and take-up are high costs and the disruptive effects of mostly free wireless services such as 3G and Wi-Fi. Available speeds also fall short. For example, in urban areas, where 80% of households have Internet access, the average download speed is only 4Mbps. The national average is 3.4Mbps, according to ChinaCache, a CDN provider.

The lack of take-up is worrying the telcos and they are withdrawing from their ambitious investment plans. In cities, upgrading to FTTH costs about RMB1,000 (US$160) per household and five to 10 times more in rural and remote areas. Some estimate the total cost of upgrading to be around RMB600bn(US$97bn) when multiplying the number of households and vast geography. The risk is even worse when return on broadband service can take many years.

What to Expect in 2014

It is evident that FTTH provision is at an impasse in China. On one hand, most urban households now have DSL access and are reluctant to upgrade to FTTH; on the other hand, there is lack of enthusiasm from telcos and equipment makers to push for FTTH due to low ratios and poor returns; and telcos are unyielding on cutting retail prices after hefty investments.

More competition would improve the situation, but the government so far has seemed unwilling to intervene. Two companies control most broadband services, China Telecom and China Unicom. By the end of 2013, CTC claimed 100 million customers and CUC 65 million, and each often has a virtual monopoly at the local level. Another provider, Great Wall, has about 6m customers.

In late 2013, China Mobile, the country?s largest wireless operator, was granted a license to provide broadband services. Even before the license announcement, China Mobile had about 12m broadband customers through the wholly-owned Tietong. By Chinese standards, the number is too small to provide meaningful competition, but China Mobile intends to expand its presence in the market.

Meanwhile, companies like Great Wall and a bevy of local broadband providers are offering competitive pricing to lure customers, but the effect is hard to discern because many customers are concerned about the their lack of support, bandwidth delivery and ability to grow. For the most part, cable TV operators in China have not grown to a full-blown broadband player for reasons of inadequate infrastructure (two-way content delivery, distribution network and billing), lack of technical know-how and funding. The attempt to change in the past has largely fizzled.

The major telcos, with their infrastructure, market clout and financial stability, remain the best bet to expand broadband access. Despite the problems, they are working to make FTTH more attractive. For example, they are targeting young consumers that rely heavily on bandwidth for games, video and social media, and are willing to pay higher premium. Chinese telcos could also provide more bundled offers, which has been so successful in other parts of the world in driving down prices and driving up take-up.

Source: EIU

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