Since becoming widely used across the country, telecommunications, broadcasting and Internet networks have been separately regulated in China. Now, in order to further develop the country's digital communications network, operators in the three sectors will be permitted to enter each other's business areas, a development that will hopefully encourage competition and service innovations.

The State Council approved the pilot program for network convergence at an executive meeting on June 6. The program will be implemented in 12 cities as of July 1, representing a major shake-up for telecommunication, broadcasting and Internet industries.

TRIPLE PLAY: The network convergence initiative will allow broadcasting, Internet and telecommunication service providers to experiment with crossover applications over the converged networks (CFP)

After the convergence, broadcasting operators can provide telecommunication, voice and Internet services, in addition to TV programs. Internet and telecom operators will be permitted to develop Internet-based and mobile phone-based TV programs, sharing diversified programs available on broadcasting networks.

The program will hopefully spur service providers, application developers and hardware manufacturers to invest heavily in developing new products and services. It will also make Internet, telephone and TV services, now available through three different links, more convenient for users at one link.

Network fusion

Integrating the three networks will be no easy task, especially since regulators are still negotiating rights involving the redistribution of resources and interests.

The initiative, as specified by the Chinese Government, will unfold in two phases. From 2010 to 2012, trial programs will be launched to promote mergers between broadcasting and telecommunication services, and policies will be introduced to guarantee the standard and orderly implementation of the program. From 2013 to 2015, the convergence will be extended to cover all three networks, particularly integrated applications, to encourage competition within the network industry. A supervision and administration system will also be established during this period to specify obligations and guarantee smooth coordination, rational decision-making and efficient management.

The convergence will commence in cities with adequate information infrastructure before branching out to other parts of China, said the State Council. Qualified broadcasting and TV operators are allowed to offer value-added telecommunication services, and certain telephony and Internet services. Qualified telecom operators are allowed to produce and broadcast some TV programs.

The State Council required local governments to submit applications for the pilot program earlier in June. Applicants are required to have bi-directional, digital cable TV networks, a large customer base for cable TV programs, and should have completed shareholding reform and be capable of raising capital on their own or at the stock market.

On June 28, the State Council officially announced the list of cities and regions eligible for the pilot program.

Participating cities and regions are required to follow certain criteria during the trial. These include: revving up efforts to restructure network infrastructures; updating all existing cable TV networks to digital ones; pushing cable TV network integration forward; extending broadband coverage in rural areas; and increasing household accessibility to fiber optic connections.

When network restructuring is complete, they are also required to promote multi-media crossover applications over the three networks, enabling users to watch digital satellite TV programs on mobile handsets, PCs or laptops. These innovations will provide a boost to entertainment, service and communications industries.

The State Council said the government would support convergence-oriented product development, network construction and application promotion in rural areas with preferential financial, fiscal and tax policies. It will also include relevant products and services in the list of government purchasing items.

Market pie

The network convergence initiative, also called "integration of three networks," will involve investments and consumption worth 688 billion yuan ($100.7 billion) over the next three years, said Wu Hequan, head of an expert team assessing the pilot program.

For investments in cable TV network restructuring, upgrading IPTV set-top-boxes­—a device for receiving digital signals—and an information retrieval system for audio and video digital contents will call for 249 billion yuan ($36.5 billion), which could spur information service and terminal device consumption worth nearly 439 billion yuan ($4.3 billion). It could also create 200,000 jobs.

A report by Datong Securities Brokerage Co. Ltd. shows 100 million of China's 160 million cable TV users do not have access to digital signals. This equates to potential sales of set-top-boxes valued at 35 billion yuan ($5 billion). More than 50 producers of the special box in China will benefit directly from the deployment of the scheme.

With nearly 150 million users expecting updates to existing facilities to enable bi-directional transmissions, equipment providers are likely to yield sales close to 60 billion yuan ($8.8 billion).

CCID Consulting, China's leading research, consulting and IT outsourcing service provider, estimates that every province will need to inject about 20 billion yuan ($3 billion) in the convergence process, which means a market worth 500 billion yuan ($73.2 billion). These local investments, together with 150 billion yuan ($22 billion) for fiber optic broadband networks the Ministry of Industry and Information pledged, will create a network convergence pie worth 650 billion yuan ($95 billion).