Network Convergence Plans Push China’s Optical Equipment Market

Trials begin to adopt an integrated network among China’s numerous cable operators.

In June, China’s State Council announced a list of cities qualifying for the first trial of the China Three Network Convergence project, an initiative that hopes to integrate telecommunications, TV and radio, and the Internet in the world’s most populous country. The list includes the country’s two largest cities of Shanghai and Beijing, as well as the major urban areas of Harbin, Dalian, Nanjing, Hangzhou, Xiamen, Qingdao, Wuhan, Shenzhen, Mianyang, plus the city group of Changsha, Zhuzhou and Xiangtan.

At the same time, the State Administration of Radio, Film and Television (SARFT) announced a plan to form a national-level cable network company to help address the problem of China’s fragmented cable market, currently encompassing more than 100 cable operators and over 3,000 television broadcast entries. As the government agency mandated to supervise state-run enterprises engaged in TV, radio and film, SARFT hopes to form an integrated network with the country’s various local cable operators, and the establishment of a national-level company will allow SARFT to obtain a fundamental telecommunications license based on triple-play services.

Before the national-level company is completely formed, however, the first round of the Three Network Convergence project will launch in the 12 trial cities. Leading the investments on the triple-play networks, along with SARFT, will be Next Generation Broadcasting (NGB), a broadcasting network based on digital cable TV and mobile broadcasting technology introduced by Beijing.

Growing Bandwidth Poses Difficult Choices
First established in Shanghai in July 2009, the NGB network aims to have 30Mbps bandwidth access for each subscriber. The network is based on next-generation, interactive high-definition technology for application in television broadcasts, as well as in value-added information services. A network of 500,000 subscribers is expected to be completed by the end of 2010 in Shanghai, with the NGB to be expanded to other 11 trial cities on the first-round list.

Although there has been no detailed information on the deployment of the NGB in the first 12 cities, the investments involving equipment—spanning backbone networks, metro networks and access networks—are expected to stimulate the Chinese telecom market. Furthermore, a series of cutting-edge technology deployments will be considered by the NGB establishment, providing additional impetus to the overall effort.

For optical network equipment, the NGB project is considering the adoption of 40G and 100G Wavelength-Division Multiplexing (WDM). While the first commercial 40G WDM network was launched in China only as recently as 2008, 100G already seems to be the focus of the NGB establishment for the next 10 years.

Nonetheless, 40G remains the first choice among China’s telecommunication carriers—ahead of 100G—in terms of technology maturity and equipment price, even though the 100G WDM network has more significance for the NGB trial project. After all, the NGB target is to reach 200 million NGB homes by the end of 2020 with a total investment amounting to at least $29.3 billion, according to SARFT.

From 2010 to 2011, iSuppli estimates the investment on optical network equipment during that period will reach approximately $840 million.