The “3-network convergence” is a national strategy, which denies the chances that either broadcaster or telco can take a dominant place. The only winner will be the customer from two parties cooperation.

On July 1, the State Council published the list of the first pilot cities of “3-network convergence”. This project which has been under preparation for more than ten years finally came into practice.

The pilot cities include: Beijing, Dalian, Harbin, Shanghai, Nanjing, Hangzhou, Xiamen and Qingdao, etc. Previously, Zhang Dejiang, vice premier of China, held a conference for the coordination team of “3-network convergence” on June 6, in which the experimental project was approved.

In January 2010, Chinese premier Wen Jiabao held a standing conference of the State Council in which he declared the government’s plan of promoting the convergence of telecom network, cable network and the Internet. This conference was thought to be a breaking point for the “3-network convergence” project. In addition: in-phase targets were established: the mutual entry of cable network and telecom network would be in experimental phase between 2010 and 2012; the next two years from 2013 to 2015 is featured with the realization of “3-network convergence” as well as the construction of new system, mechanism and supervision pattern.

A source pointed that the plan came out after 13 times’ changes of the draft. In 1998, the concept of “3-network convergence” was for the first time put forward and was listed in the national plans. However, during the past 12 years this feasibility of this project was under discussion. But now, the practicing period has come.

Opportunities and Challenges

According to an expert, the list of first pilot cities was approved by the broadcasting and telecom sides after several negotiations.

According to the plan of “3-network convergence”, the qualified broadcasters can apply for operating the value added telecom business, the Internet access based on cable TV and the IP telephone business. Meanwhile, the qualified telecoes can apply for operating the production and broadcast of TV programs (the ones with politic topics excluded), IPTV services and mobile TV.

In addition, broadcasters are responsible for building and managing the integrated broadcast platform of IPTV and mobile TV. A cable network TV company whose business covers the whole country will be established according to the plan.

As for the dispute about “which party can benefit more from the pilot plan”, Zeng Jianqiu, head of the 3-Network Convergence Institute, Beijing University of Posts and Telecommunications, said that the plan was composed based on the advantages of three networks. “Each party has its duty and their respective advantages can be best used.”

Chen Jinqiao, deputy chief engineer of the Telecommunication Institute of the Ministry of Industry and Information Technology, thought that the plan had established definite roles for the broadcasters and the telecoes, which fit both sides’ strength and level. Presently, the telecoes are stronger than the broadcasters in technology, operation and market scale; therefore, telcoes will shoulder more responsibilities in the future.

The progress of “3-network convergence” brings opportunities and challenges for both sides. The broadcasters can turn from mere content supplier to integrated service supplier. And telcoes can also expand their business arms into the content production and distribution.

It is known that telcoes will power the innovation in high-definition TV, video communication and interactive video. Intensive cooperation between telcoes and telcoes will be seen in the fields of high-definite and 3D TV. Besides, the telecom service suppliers will commit themselves to developing the video communication and give all-credit support to their partners in the interactive video.

The “3-network convergence” can bring about the changes in the business pattern – from “content delivery” to “content subscription”, from “the ads for the public” to “the ads for a kind of people” and from “product sale” to “product customization”. The customers are the biggest beneficiary to these changes. “The ‘3-network convergence’ can bring about the economic development and make our lives more colorful and convenient,” said Zeng Jianqiu.

Mystery of “Shanghai Pattern”

The convergence of cable, Internet and telephone generate a perfect business pattern – the “Shanghai pattern” of IPTV. This successful pattern is attributed to the two participators – China Telecom Shanghai Branch and Shanghai Media and Entertainment Group (SMG), not over-focusing on the benefits. Instead, they work a new pattern – to combine with each other to maximize the customers’ interests.

Presently, this pattern saw great success in Shanghai. On December 16, 2009, China Telecom and SMG declared that the number of IPTV users in Shanghai had exceeded 1 million, making Shanghai the first city in China having more than 1 million IPTV users. To have such an achievement only cost China Telecom Shanghai Branch four years.

The Shanghai World Expo opened on May 1. Before that, an optical fiber network was spread in Shanghai. Apart from capitalizing on the optical fiber network and the IPv6 technology to improve the definition of IPTV to the Blue-ray level, China Telecom Shanghai Branch was one of the first IPTV operators introducing the on-demand service of 3D videos. “China Telecom Shanghai dared to invest a huge amount of money in the new business overlapping telecom and TV fields, working out a profit-sharing pattern with SMG with a strategic position in the local ‘3-network convergence” project in Shanghai,” said a senior analyst in the telecommunication industry.

The harmonious situation is based on the rational duty division of China Telecom Shanghai Branch and SMG. The SMG is responsible for the contents assembly while China Telecom Shanghai is responsible for the delivery of contents. Presently SMG takes 40% of the value added service and China Telecom Shanghai takes 60%. However, 60% of the contents and operation charge business belongs to SMG and 40% to China Telecom Shanghai. This pattern is featured with simple structure, clear duty division and strong feasibility. Former Minister of Information Industry Wu Jichuan considered this pattern as a good exploration in the “3-network convergence”.

“Shanghai pattern” was attributed to the important role of Shanghai in China Telecom, which had great desire to promote this project in Shanghai. On June 25, 2008, the IPTV Lab of China Telecom was founded in Shanghai. On April 28, 2009, China Telecom Video Service Center was established in Shanghai. Of course, the success was related with SMG’s strong ability of contents supply.

Duty division was also seen in the ads promotion. China Telecom Shanghai was responsible for ads on the print media as well as the outdoors ads. SMG placed ads on its TV channels. Notable is the inclusiveness of the both sides’ cooperation. China Telecom Shanghai Branch and SMG have autonomy and they can choose some other service providers to improve the diversity of its products. For example, China Telecom Shanghai inked agreement with some service providers of search, news, property information and so on. Meanwhile, Shanghai Telecom also tried some other business patterns, like Shopping on IPTV, and saw good results.

Mr. Zhang Weihua, Party chief and general manager of China Telecom Shanghai said: “When the society is calling for the ‘3-network convergence’, the cooperation between Shanghai Telecom and SMG, provides a feasible method for this project. It is not only good for the healthy and sustainable development of enterprises, but also of great help to improve people’s living standards and meet people’s demand of entertainment. In addition, it can accelerate the development of digital media and help Shanghai to find new power for GDP growth.”

Can “Shanghai Pattern” Be Duplicated?

Though the “Shanghai pattern” won applause, whether this pattern can be spread all over China remains a question mark.

Actually, the “3-network convergence” was run very smoothly in the foreign countries several years ago but failed to work in China. The biggest hurdle was, as many people believed, the conflict about profit distribution, say, the control of the “3-network convergence” project.

It was known that there had been long and durable conflicts between the telcoes and broadcasters. The “Quanzhou event” was the best proof.

In 2005, the telecom service suppliers in China eyed on IPTV, which was an emerging business at that time and planned to enter into the related market in Quanzhou, Fujian. However, the project was banned due to the interference of the radio and TV administration department of Quanzhou.

Whether the “Shanghai pattern” can be duplicated or not depends on the availability of value added service supplier and contents supplier as well as the both sides’ ability of business development. Then, Shanghai had unique business environment – the two companies are equal in the resources and number of users – these geographic advantages are the hardest part to be duplicated.

However, Zhang Dazhong, vice president of SMG, said that the “3-network convergence”, as the national strategy, was an unstoppable trend. “Neither telco nor broadcaster can take a dominant place. The customers will be the biggest winner from the two parties cooperation.”