Sunday, February 27, 2005

PCCW and China Netcom Target Broadband TV Opportunity

China Netcom and PCCW, the incumbent carrier in Hong Kong, provided an investor update on their partnership deal announced last month. The companies are looking to capitalize on telecom growth in China, especially in broadband TV services. China Netcom currently has 110 million fixed line customers and 8 million broadband customers, the majority of which are in the ten northern Chinese provinces where it is the incumbent operator. China Netcom's strategy is to defend its territory in the north, while looking for new expansion in the south.

Since September 2003, PCCW, the incumbent operator in Hong Kong, has been offering Broadband TV. The service currently has over 400,000 subscribers. Customers can choose their preferred programs from more than 60 channels using an "a la carte" pricing system, while being able to enjoy 12 channels provided free of charge.

Together, PCCW and China Netcom see a huge opportunity for broadband TV in China, given the potential market of over 300 million TV households in the country. Based on third party research and forecasts, CNC and PCCW estimate China's broadband TV market could reach RMB 10 billion by 2008.

China Netcom expects its broadband subscriber base to keep growing at a CAGR of 40% , reaching 40 million subscribers by 2008. The company believes its current 8 million broadband subscribers will be early adopters of BBTV. Its first BBTV deployments will begin this year. Initial cities with high GDP per capita and high broadband penetration will be selected for the phase 1 pilot deployment.

If the BBTV service attracts a penetration rate of 15 to 20% by 2008, BBTV revenue might reach RMB 3.0 to 3.5 billion by 2008. Eventually, China Netcom and PCCW hope to target all households in China through partnerships with other carriers.

PCCW and China Netcom said they are also looking at other ways to capitalize on business opportunities, including 2G/3G services, the hot real estate market in China, cross-border communications and submarine cables.

  • China Netcom agreed to pay approximately US$1 billion for a 20% stake in PCCW, Hong Kong's incumbent telecom operator.

  • In February 2004, China Netcom acquired full control of Asia Netcom, a company founded in March 2003 by a consortium lead by CNC which included Newbridge Capital and Softbank Asia Infrastructure Fund.


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