IPTV: Experiences of China and Chinese Taipei

PTC’06 Proceedings

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IPTV: Experiences of China and Chinese Taipeii ii Chun Liu and Huifei Lin Pennsylvania State University USA 1.0 Introduction There is no doubt that IP has changed everything. IP technology allows various broadband applications to work together to enhance the capabilities of otherwise separate services. In the video marketplace, IPTV technology is no longer a future possibility, but a present reality. While cable television companies have been offering broadband service for about a decade, telecommunications carriers are now ambitiously building video-enabled networks and offering equivalents of traditional broadcast and cable video service. In both China and Chinese Taipei, TV and telecommunications services have been regulated by different government agencies and strictly separated. Both of them have temporarily put IPTV under the umbrella of cable after lengthy and heated debate. This paper examines the impact on different regulatory structures and philosophies of the development of the IPTV market. It also explores the potential of IPTV to reshape the existing regulatory regime. IP-enabled services such as VoIP and IPTV are provoking regulatory headaches worldwide. Using IPTV as an example, it is clear that existing regulatory and governmental structures need to be reconsidered. Traditional models of regulation have become dysfunctional, doing more harm than good. The inherent paradoxes of these models become apparent in the attempt to apply them to IPTV, a technology which can span broadcasting, cable, satellite, mobile and the Internet, delivering packets of bits which can be reconstructed into “television” or something like it. Although estimates vary over a fairly wide range, it is clear that widespread use of IPTV is widely believed to be approaching rapidly. Consultancy Multimedia Research Group estimates there will be 15.6 million IPTV viewers by 2007, up from a few hundred thousand today. Parks Associates predicts 21.7 million homes receiving IPTV services in 2009, mostly in Europe and Asia (Vittore, 2005). A study from TDG Research predicts that worldwide IPTV subscribers will pass the 20 million mark around 2010, and that IPTV-generated revenue will experience a compound annual growth rate of approximately 102 percent between year end 2004 and year-end 2010. With the launch of IPTV in Europe, Asia, and North America, according to a survey conducted by market research firm MRG, the number of global IPTV users will increase from the current 2 million to 26 million in 2008.


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This paper will look at the situation first in China, and then in Chinese Taipei, and conclude with some observations about the introduction of IPTV and its impact on regulatory regimes. 2.0 What is IPTV? To understand why IPTV presents such a challenge for regulators, it is useful to first review how IPTV works, which makes it different from “traditional” video media. It is understood that this is an evolving technology, and its characteristics may soon change to overcome some current limitations. “IPTV” generally speaking, refers to video content delivered to a user over a closed network by means of IP-based technology. This content is generally referred to as “television,” which is a bit of a misnomer as it could potentially arise from any video source. It is the video analog of VoIP. This is relevant because it appears that regulatory policies applicable to VoIP are being carried over into IPTV, at least in the United States. It is also worth noting that IPTV can potentially be delivered not only over telephone lines, but by fiber optics, co-axial cables, satellites, broadband wireless, and power-line companies. While traditional telecommunications companies have been the first to adopt IPTV, they have no long-term patent or monopoly on it. IPTV is unlike cable television, which delivers all of its channels concurrently (both analog and digital), using up a good deal of bandwidth. Basic IPTV delivers only one channel at a time, as requested by the user. This, of course, requires much less bandwidth. The signal can be received either on a computer with appropriate software, or on a television equipped with an IPTV set-top box. The signal can be recorded and/or transferred to other IP-enabled devices. In its initial implementations, IPTV rides on a DSL circuit delivered by a “telephone” company over its existing plant using copper line into the home. To make this possible, IPTV relies heavily on compression. To work over copper lines, it needs better compression than MPEG-2, which is being provided by Windows Media 9, and MPEG-4. For example, an MPEG-2 picture might require 4Mbps to work. One IPTV system, Bluewin, uses a total connection speed of 2.4 Mbps, 1.8 Mbps of which are dedicated to IPTV, and the rest are available for features, Internet connectivity, or voice. When the viewer “changes channels,” the set-top box notifies a computer server at the IPTV operator’s facilities to virtually instantaneously send a new stream of programming packets. It is the speed with which this happens that is one of the distinguishing characteristics of IPTV and makes it competitive with traditional cable television. This method of delivery may also influence the phone companies to try “a la carte” pricing


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(pricing for individually selected “channels” rather than a pre-set bundle of channels), something cable operators have avoided and the FCC has questioned. In this way, it is possible for the operator to provide an indefinitely large number of program choices, unconstrained by bandwidth limitations. It is expected that these will go well beyond traditional “television” offerings in both content and format. In the future, the user may also be able to search the public Internet for videos. The audio and video packets are reassembled into “programs” or “channels” by the software in the IPTV set-top box. Unlike a cable “converter” box, the IPTV “box” is really a fully-featured digital media player or computer. Even so, it may be designed to look like a traditional analog “converter box” in an effort to be consumer friendly. The “box” and software can be packaged with a digital video recorder, with a hard drive, which can provide VCR or TiVo like features – e.g., stop, rewind, replay, fast forward. In its present state of development, it appears that the technology will be challenged to deliver “high definition” television programming over DSL lines, as well as different content to multiple sets in a home (easily accomplished by cable with an inexpensive signal splitter). The process does involve some small delays in signal delivery due to compression and buffering. And if there is a software problem, the “converter box” (which is really a computer) will probably have to be re-booted, unlike a cable box. Microsoft is currently the leading provider of IPTV software. However, the IPTV set-top boxes are being manufactured by several electronics hardware companies. Microsoft has entered into an agreement with Alcatel to partner for this purpose. Microsoft apparently wants to offer an end-to-end turn-key package, but at present it is possible for carriers to make an agreement with Microsoft just for the use of the software package. That is a general overview of IPTV. Current policy debates focus on its use by “telephone” companies to deliver video programming for pay to subscribers over “phone” lines using an IP signal riding on top of DSL-type technology. So, regulators ask, what traditional regulatory “silo” does it go into? Is it broadcasting? Common carrier telecommunications? Cable television? An unregulated “information service”? To this question we shall return, but first the current situation will be reviewed. 3.0 IPTV in China 3.1 The market in China for IPTV China may be in a position to overtake both Europe and the U.S. in consumer entertainment by adopting IPTV in the future. China’s telecoms companies and


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broadcasters are gearing up to tap into IPTV, a potentially lucrative business. China now has about 100 million cable TV subscribers and nearly 23 million broadband Internet users. Nationally, the State Administration for Radio, Film and Television (“SARFT”) says there were 2.19 million IPTV subscribers in 2004, up from approximately 10,000 in 2000. Du Baiochuan, a SARFT (State Administration of Radio, Film and Television) official, is quoted as saying he expects IPTV subscribers to reach 20 million in 2008. Other forecasts vary. Analysis International, a leading technology advisor in the Asia-Pacific Region, projects that the number will reach 16.65 million by 2007 ("Number of China's IPTV Subscribers Expected to Reach 1.17mn", 2005). IDC forecasts the number of IPTV subscribers will exceed 8 million in 2008. Informa Telecoms and Media, a globally well-known market research company, predicts that the number will reach 4.9 million by 2010, where the U.S. will take second place with 3.9 million subscribers ("China to Be World's Largest IPTV Subscriber Market by 2010", 2005). On the downside, Norson Telecom Consulting predicts only 1.2 million subscribers by 2009, citing regulatory obstacles. IPTV services in China are expected to be a US$12.5 billion market by 2008. 3.1.1 The IPTV “Gold Rush”: 2004 Due to ambiguous government policy, both telecommunications operators and other non-TV media companies rushed into the IPTV market in 2004. China Netcom, the country’s fourth largest telecoms carrier, edged into the Internet protocol television sector by establishing three IPTV stations over the past half-year. The latest TV station of this kind is www.bjiptv.com.cn/, launched by Beijing People’s Broadcasting Corporation (BPBC) on December 24, 2003. The BPBC’s TV Web site started trial operations on December 24th simultaneously in Beijing, Tianjin, Hebei Province and Heilogonjiang Province. In addition, Netcom has joined hands with the International Data Group and China Central Television to enter the Internet TV business. Netcom poured RMB 500 million into a broadband Internet venture, Tiantian Online (http://www.116.com.cn). Netcom is the largest shareholder in the venture with a 40% stake. The company is also a strategic partner of www.chinasee.net, an Internet TV site opened by the dominant state TV agency CCTV this June. Now chinasee.net operates in Beijing, Shanghai and Jiangsu Province, with 22,000 paid users registered. CCTV has said it expects to recruit 600,000 IPTV subscribers this year. China Telecom is said to have plans to launch large-scale promotions of IPTV in most cities in the country this year, following the launch of the Internet TV service in Shanghai last August, also in co-operation with a subsidiary of China’s Central Television (CCTV). Many entities other than telecommunications carriers have an interest in IPTV. Wang Liang, head of BPBC, reportedly said: “There is a huge potential for IPTV. There are limited channels for both television and radio, whereas the space for Internet television


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is endless. Unlike television stations, we do not need big television cameras: a family-use digital camcorder will work.” He noted that production costs are vital for a country playing leapfrog with western technologies by going straight from radio to IPTV. It is cheaper to use China’s mushrooming number of Internet connections than it is to build cable TV networks. 3.1.2 SARFT’s Control: An Update At the end of 2004, the SARFT issued a new administrative order requiring all IPTV licenses to be reviewed. Only two companies have been reissued licenses after the review: Central Television (CCTV) and Shanghai Media Groupiii (SMG). CCTV has a long history of trying to tap into the IPTV market. Early in August 2002, CCTV and China International Television Corporation (CITVC) invested RMB 50 million in setting up ICCTV.com.cn Networks Corpration Ltd. In 2005, CCTV launched its news and entertainment channels on www.cctv.com, a step farther into the IPTV industry ("CCTV Bets Big on IPTV Business", 2005). SMG, based in Shanghai, is one of the largest media companies in China. SMG has teamed with China Netcom and China Telecom to offer IPTV trial service. China Telecom will initiate this in 17 pilot cities including Shanghai, Guangdong, Zhejiang, Jiangsu and Shaanxi. China Netcom will introduce the business in Harbin, the capital city of Heilongjiang Province. ("18 Chinese Cities to Test Run IPTV Business", 2005). SMG also launched an IPTV research laboratory with Alcatel Shanghai Bell Co., Ltd. in Shanghai aiming to provide IPTV solutions, and boost the commercialization of IPTV services in China on July 13, 2005. ("Alcatel Shanghai Bell, SMG Launched IPTV Lab", 2005). The private sector, especially Internet content providers, have also shown an interest in the IPTV market. Interactive Entertainment Ltd., China's largest online gaming operator, recently signed a cooperative agreement with 48 leading content service providers to form China's first IPTV content alliance ("Shanda Set up First IPTV Content Alliance", 2005). Chinese web-portals, such as sina.com, sohu.com, tcom.com, etc., were frequently reported to be entering the IPTV market, although many of those reports turned out to be bogus. It is unlikely that the SARFT will open the television industry, including IPTV, to private and foreign content providers in the near future. 3.2 China’s IPTV Regulations Since 1949, television networks and telecommunication networks have been regulated by different government agencies. With the advance of new digital technologies, both TV networks and telecommunication networks are able to provide high-speed


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broadband services. Both networks and their regulators are trying to maintain monopoly power over their traditional service domains and, at the same time, trying to penetrate into each other’s area. In 1999, State Council Decree 75 reiterated the national ban on network convergence. Since then, no license has been issued to television/cable/radio companies to offer telecommunication services by the MII, and the SARFT has also strictly prohibited telecommunication carriers from entering the television market. IPTV seems to have made some breakthroughs in the obsolete national ban. In 2003, the SARFT issued “The Management Measures for Dissemination of Audio-Visual Programs on Internet” (Decree 15, 2003) that established a licensing regime for audio and video content transmitted over the Internet. Subsequently, the end of 2004, over 80 organizations obtained a 2-year permit to transmit audio-visual programs over the Internet. While the industry was rushing into the promising IPTV market, the SARFT revised Decree 15, reclaiming rigorous control over IPTV. According to the new orderiv, IPTV can be delivered to the TV set, but only television stations and other media companies regulated by the SARFT are eligible. Telecommunications operators are allowed to relay audio-visual content over their networks, but can not integrate content with conduit. Companies with foreign capital are prohibited from providing IPTV service. As a matter of fact, all the IPTV licenses issued in 2003 would expire in 2005. It is reported that the SARFT had taken actions to close down illegal IPTV services ("SARFT Takes Actions on Illegal IPTV Vendors", 2005). So far, only two companies have been issued new IPTV licenses: China Central Television (CCTV) and Shanghai Media Group (SMG). 3.3 China’s IPTV Issues 3.3.1 IPTV vs. Digital TV The SARFT has a schedule to finish upgrading China’s analog broadcast television network to digital by 2015. According to the SARFT’s plan, digital TV programs should be available in all 4 municipalities and over 60% of provincial capitals by the end of 2004 ("China Accelerates Popularizing Digital TV Sets", 2004). However, on the user-end, a recent report from Analysis International, a consulting company in the Asia- Pacific Rim, said that the number of Chinese digital TV subscribers would be merely 5.35 million by the end of 2005, much less than the number that the SARFT had expected ("Digital TV Meets Cold Reception in China", 2005). A lot of problems are hindering the development of digital TV. High price is one big obstacle for the general public. The monthly subscription fee for digital TV is usually three times that for analog cable television service, not to mention the initial 1000RMB (US$120) set-top box.


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The fragmented management structure of China’s cable TV system is another problem. Every province, if not every township, has its own cable operator. Unlike telecommunications, China’s cable TV network is not nationally integrated. Thus, the SARFT has no direct control over thousands of small network operators. Evidence shows that the fragmentation has slowed down the SARFT’s plan of transition. China Development Bank (CDB), which has an agreement with the SARFT to finance the digital TV transition project, told the press that it had tremendous difficulty evaluating applications for loans from numerous operators. CDB urged the SARFT to make a coherent national plan as soon as possible.("CDB Falls Into Trouble in Making Loans to Cable TV Industry", 2005). Ambiguous policy regarding digital TV standards also slows down development. Industry observers believe that there is a strong group of policy makers who believe China should secure technological independence from the West in key industries, such as 3G (the Third Generation Wireless), digital TV, etc. However, this goal is not easy to accomplish. China has postponed the release of its digital TV standards repeatedly since 2003. Though nobody expects the Chinese government to abandon its domestic digital TV proposal, the operators can not wait, but have to turn to oversea vendors to meet the deadline of the digital transitionv (Andrew, 2004). Even within the government, there seem to be some discrepancies among ministries. Liu Quan'en, who led the government's standards process for digital TV, said in later 2004 that the MII was backing the domestic standard, while the SARFT wanted to use mature international standards in order to roll out digital TV service as soon as possible (Andrew, 2004). The most recent report disclosed that the final digital TV ground transmission standards would be submitted to National Development and Reform Commission (NDPR) soon, and the decision is expected to be announced in 2005 ("Digital TV Ground Transmission Standard to Debut", 2005). Nevertheless, the SARFT has taken several initiatives to facilitate the digital TV market. The SARFT recently decided to give out free set-top boxes that would create at least 30 million digital TV users and a digital TV market valued at over RMB 20 billion("SARFT Delivers Free STB to Create Digital TV Market", 2005). In addition, the SARFT is encouraging operators to build up inter-province networks to help integrate the fragmented market ("CDB Falls Into Trouble in Making Loans to Cable TV Industry", 2005). With an eye to the SARFT’s pressing need to popularize its own digital TV system, it is not difficult to understand the SARFT’s lack of interest in IPTV that is primarily pushed by telecommunications operators. Many people believe that the rapid development of IPTV will cannibalize subscribers from digital TV to some extent. However, responses from cable operators are optimistic. Luo Xiaobu, vice general manager in Oriental Cable Network Co.vi, commented that


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digital TV would dominate the development trend in the next several years, citing the fact that IPTV was restricted by regulatory factors. In the long term, he expected IPTV and digital TV to be complementary, instead of rival, technologies ("Development of IPTV Not Mature, Oriental Cable Network", 2005). Analyst Junmei He of ABI Research also predicted that the SARFT was likely to include IPTV in their digital TV plan and remove the current regulatory barriers gradually. Concurring with Luo Xiaobu, he also predicted that IPTV would not be a competitor of digital TV in the long run ("China IPTV: Another View ", 2005). 3.3.2 Content In China, both television stations and cable operators are state-owned and regulated by the SARFT. In a sense, the television industry in China is a closed system. The SAFRT controls the entire business chain from production to distribution. China’s cable systems now deliver as many as 80 channels. However, many programs are homogeneous. In the near future when digital TV is ready, it will not be easy for the SARFT to fill up hundreds of new channels. As noted by Junmei He of ABI Research, "in the current business model, the IPTV content provider is also the content aggregator, and even the service provider. IPTV content providers are lacking the commercial experience needed to aggregate and package content flexibly and effectively" ("ABI Research: China's IPTV Market to Boom in 2007 Despite Outstanding Issues", 2005). Regarding television programming, there is no sign that the Chinese government will loosen its rigid control. The SARFT, guided by the Party’s propaganda department, censors all foreign-made media content and restricts non-Chinese programs to 30% of each TV channel's broadcast. One concern, expressed by Wang, a senior officer of the SARFT, regarding IPTV is its interconnectivity with the Internet. He commented “although IPTV is a very promising technology, it is not appropriate for telecommunications carriers to get involved. Telecommunications carriers’ IPTV network is interconnected with the public internet. Thus, it is very difficult for us to control the content being transmitted that brings potential threats to national security and culture integrity” (Shun, 2005). In addition to regular TV programming, IPTV is capable of offering some new features such as online gaming, distant education, etc. As a matter of fact, it might be a better strategy for telecommunications carriers to focus on those new services rather than to simply replicate its competitor’s regular TV programming. Shanda Interactive Entertainment Ltd., China's largest online gaming operator, has signed a cooperative agreement with 48 leading content providers to form China's first IPTV content alliance ("Shanda Set up First IPTV Content Alliance", 2005). China Telecom and China Netcom also say that they will focus on new features of IPTV. However, some observers worry


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that, despite these advanced features, without enough regular content, it will still be very difficult to snatch the general public from cheap regular cable television service (Rebecca, 2005). 3.3.3 Local vs. National Interest Compared to telecommunications, the structure of China’s TV industry is more fragmented. China has some 1200 cable operators (Goro & Sylvia, 2005). Cable have not been treated as a separate industry, rather, cable operators have been integrated into terrestrial broadcast stations of the same region and work closely with their broadcast counterpart in programming (Guo, 2003). In 1999, the SARFT adopted a new policy called “separation of network and station”. According to that, cable operators should only transmit signals, while stations should be regarded solely as content providers. In the past, no companies outside of the SARFT’s system were allowed to invest in the Chinese cable industry, and no cable operators could own cable systems outside of their regions (Goro & Sylvia, 2005). With an eye to expediting the development of digital TV, the SARFT has begun to encourage conglomeration and cross-entry of cable operators. However, the pace of the restructuring is far from satisfactory. Since China's CATV networks is vertical but not horizontal, the SARFT's trunk network is unable to expand into cities and towns because they all have their own networks ("SARFT Intends to Control China's CATV Networks", 2005). Guo, who was a professor of the Beijing Broadcasting Institute, commented that the SARFT still managed the industry in the old demand-economy style, although in the name of law and regulations (Guo, 2003). However, fragmentation also brings dynamics to the industry. Liu argued that the commercial imperatives that had driven cable developments at the local and provincial levels were in direct conflict with the political objectives of the central government (Y.-l. Liu, 1994). Cable operators also have incentives to cooperate with telecommunication carriers to utilize their networks to provide telecommunication services, such as VOIP, broadband access, etc. For telecommunication carriers, setting up joint-ventures with those companies that have been issued IPTV licenses is also probably the most feasible way to circumvent regulatory obstacles. Interestingly, when Beijing Radio Station announced its debut of Beijing Network Television (Beijing Wang Shi), one reporter wrote “when you look behind, you will see full of Beijing Netcom’s staffs” (P. LIu, 2005). 3.3.4 Propaganda One, if not the most important, reason for the Chinese government to keep tight control of the TV industry is its crucial function of propaganda. Fearing ideological influences,


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the Chinese government is reluctant to open the TV industry, especially to western investors. The Party’s powerful propaganda department fears that the opening up of media-rich sectors, such as TV, radio, newspaper, etc., to foreigners could eventually weaken its established propaganda machine that has been an effective tool of social control for decades. However, the popularity of the Internet, especially with the dramatic growth of broadband, has made it extremely difficult, if not impossible, for the state to censor the media content. The latest peer to peer technologies, such as BT, Napster, etc., enable broadband users to share not only software, but also media-rich contents. How effective the Chinese government’s censoring system might ultimately be is questionable. 4.0 IPTV in Chinese Taipei 4.1 Background Similar to the situation in China, Chinese Taipei’s telecommunication carriers and cable television operators have been competing with each other in order to take lead in the IPTV market. Both of them have secured huge subscriber bases in their respective markets and are aggressively moving into new generation of TV business. Based on the survey conducted by the Directorate General of Telecommunication, the cable TV penetration in Chinese Taipei was 84.8% in July 2005. Cable TV industry in Chinese Taipei generates $50 billion revenue annually. On the other end, according to the survey conducted by Taiwan Network Information Center, 56.84% (4.08million) households in Chinese Taipei are broadband subscribers, among which, 77.89% use ADSL technology (See Figure1). Among ADSL subscribers, 81.74% of them subscribe to Chunghwa Telecom (See Figure 2).

Figure 1: Internet Access Method in Chinese Taipei in 2005

1.49% 6.35%

77.89%

3.98% 1.04% 0.27% 0.42%8.56%

Free D

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Paid D

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Cable

Modem

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Leased

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Source: the Directorate General of Telecommunication


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Figure 2: ADSL Service Providers in Chinese Taipei in 2005 81.74%

4.04% 2.54% 2.27% 1.46% 1.36% 0.66% 1.04% 4.89%

Hinet

Seednet

So-Net

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GigaMed

iaAPOL

sparq

Others

Unknow

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Source: the Directorate General of Telecommunication

4.2 Chunghwa Telecom’s MOD (Multimedia on Demand) Chunghwa Telecom is the largest telecommunication service provider in Chinese Taipei. It provides a full portfolio of services including local, long distance phony, wireless, internet access, broadband networking, satellite communication and multimedia broadband. Chunghwa Telecom had dominated the telecommunications services market for over 50 years until 2000 when the Chinese Taipei government decided to open up fixed network market. However, Chunghwa Telecom is still the leader in the broadband market. Chunghwa Telecom has 12 million local phone subscribers and more than 3 million ADSL subscribers which possess 81.74% of the ADSL market in Chinese Taipei. Most other ISPs even have to use Chunghwa Telecom’s last-mile wires in providing ADSL service, Chunghwa Telecom was the first to get the IPTV license in 2003. Based on its broadband platform, Chunghwa Telecom has poured huge amount of money into video market. Chunghwa Telecom invested 190 million NT dollars into IPTV. Chunghwa Telecom got the operator’s license in 2003. In cooperation with Acer Computer Company and Alcatelvii, the company launched Multimedia on Demand (MOD) service which was very similar to regular TV service. Chunghwa Telecom signed a contract with Alcatel in June 2005viii. Alcatel will supply 870 thousand ADSL2 plus lines for the delivery of higher-bandwidth broadband services across Chinese Taipei. It helps Chunghwa Telecom in providing a flexible and reliable platform to carry MOD service. MOD is based on MPEG-2 compression technology. The compressed signals will then be sent over ADSL lines. Since most television sets in Chinese Taipei still can only display analog signals, a set-top box must be installed to convert digital signals into traditional analog signals. Subscribers can then choose programs from traditional television sets. In terms of content, MOD focuses on the diversity of entertainment programmings. MOD service includes both regular television channels and video-on-demand. In the


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beginning, Chunghwa Telecom carries five free-to-air television stations and video-on-demand service. Five free-to-air television stations include TTV and CTV with 16 basic channels such as Hakka TV, CTS's educational channel, Da-Ai TV, BLTV, Australia's ABC, and news, sport, drama and shows made by CTSix. The video-on-demand service contains education, real-time information, stock information, travel, shopping and movie stations. Audiences can enjoy the benefit of multimedia interactivity. In order to attract consumers’ attention, Chunghwa Telecom offers a series of promotional packages. With sufficient financial resources, Chunghwa Telecom provides a competitive package includes a free set-top box, free installation, and free for the basic channels in the first six months. Chunghwa Telecom had signed up more than 30,000 IPTV subscribers in the first month and had more than 200,000 subscribers within its first six months of operation. With a series of promotion, Chunghwa Telecom reached the goal of the first step. In the future, the goal of Chunghwa Telecom is to reach 1.5 million IPTV subscribers over the next 5 years. 4.3 SWOT in Analyzing MOD of Chunghwa Telecom MOD is a new service in Chinese Taipei. The following sections will assess the strengths, weaknesses, opportunities and threats (SWOT) of the Chunghwa Telecom’s MOD. 4.3.1 Strength There are several features for MOD service:

Flexible In Chinese Taipei, the cable TV subscribers have no choice but to pay for all channels without any alternative (about NT$600 for 100 channels including HBO, Cinemax, and so on). For IPTV, the consumers can pick out those channels that they like and pay for what they choose. Users can take advantage of multimedia interactivity to select the channels based on personal preferences and needs. For some packages, the subscribers can watch the programs by controlling the viewing times.

Interactive and real-time Subscribers are no longer considered passive audiences but active audiences. In addition, they can get what they order immediately.


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Abundant (content) Based on the multimedia platform, Chunghwa Telecom is planning to add content produced by domestic audiovisual content providers. Lots of different channels will be provided and are classified within the “five big categories” to target different segmented markets; entertainments, shopping, knowledge, information, and business. User friendly One remote is all consumers need to get all functions. 4.3.2 Weakness Unconventional Remote Compared to the traditional television remote, the remote of IPTV is more complicated. Therefore, efforts must be made by IPTV providers to teach audiences to get used to it. Higher Fees The charge for IPTV includes basic channels plus pay-per-view charges. The fee of access to basic channels is NT 150 per month. An extra charge will be assessed based on the number of channels, videos or movies selected. It is higher than the fee for subscribing to cable television. Therefore, it will be difficult to attract audiences who are more sensitive to price and who are used to paying just one fee to access more than 100 channels. Lack of on demand services & channels Currently, Chunghwa Telecom does not provide enough on-demand services. It just offers drama or movies on demand. Furthermore, MOD does not have a lot of channels. The 16 basic channels are similar to terrestrial TV or cable TV channels. Experience Even though Chunghwa Telecom is good at operating telecommunication services, it lacks experience in producing the content and managing the video platform.


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4.3.3 Opportunity Huge potential market Chinese Taipei has a high population density and high level of broadband penetration. Therefore, it will be easier for IPTV providers to “update” the strategy without costing much and with a lower fixed cost per capita. Acceptance The Taiwanese are open-minded in accepting new technology. Most people are willing to engage in a “trial and error.” That is one of the reason that when Chunghwa Telecom provides a series of promotions, 20,000 set-top boxes sold out quickly. Manufacturing support Chinese Taipei is home to one of the world’s information technologies manufacturing and design center. Therefore, the cost for manufacturing and supplying the IPTV devices will be comparatively low. Oversea markets New findings have shown that many oversea Taiwanese/Chinese are willing to watch domestic programmings. The IPTV business can explore this niche market because it is almost impossible for cable TV companies can not “span” the cable to oversea. Digital TV The latest telecommunication regulation requires that all conventional television broadcasts must upgrade to digital systems by 2008 which means that Chinese Taipei households will be forced to either get a new digital TV or buy the set-top box. This will benefit the IPTV business. 4.3.4 Threaten Regulation In 1999, the Cable Radio and Television Law was revised to allow the Telecommunication Carriers to operate cable television services. This motivated Chunghwa Telecom to provide the MOD service. However, IPTV crosses the line between telecommunications service and cable television service. This raises a lot of


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debate whether IPTV should be regulated by the Government Information Office (GIO) or the Directorate General of Telecommunications (DGT). In other words, should IPTV be regulated by the Cable Radio and Television Law or by the Telecommunication Law? So far, the position of IPTV is very ambiguous with no proper policies to regulate it. The issue of regulation can be discussed in two periods: before Chunghwa Telecom submitted the application of MOD and after it got the license of MOD. When Chunghwa Telecom wanted to apply for the license of MOD, the issue of where to apply was keenly discussed. The GIO considered that MOD should be regulated by GIO because MOD was associated with video services which were transmitted by a fixed line. On the other side, DGT had an opposite point against GIO’s argument. DGT thought that GIO should not regulate this new service because the network structure was different from cable television operators (Xu, 2002). In 2002, the Legislative Yuan x agreed that MOD should be regulated by the Cable Radio and TV law and thus Chunghwa Telecom should apply for the license of MOD from GIO based on a trial basis. Thereafter, Chunghwa Telecom submitted the application of MOD in 2003 and got the license issued by the GIO (Liu, 2004). However, according to Chinese Taipei’s cable television policy, any party, government, or armed force can not involve in the ownership of media companies. Chunghwa Telecom was owned by the government in the past. Chunghwa Telecom started to privatize in 1996 and is scheduled to complete its corporatization in 2005. After privatizing, DGT still has 48% ownership of Chunghwa telecoms. Therefore, the GIO requires Chunghwa Telecom to release stock owned by the government as part of the company's plan to privatize. Otherwise, Chunghwa Telecom will have to stop the MOD business even though it has the MOD license. This policy will be effective at the end of 2005. Since they received the IPTV license, Chunghwa Telecom has invested 190 million NT dollars and has more than 55 thousand subscribers so far. They argue that it does not make sense to force them to stop in operating IPTV businesses. However, should IPTV be regulated by telecommunications law, the telecom companies do not need to follow GIO’s ownership regulation? GIO has considered MOD to be useful to stimulate the competition in the cable industry. Facing the regulatory dilemma, GIO has suggested combining three laws (the Broadcasting Law, the Cable Radio and TV law and the Satellite Radio and TV law) into one (Liu, 2004). However, with this issue unsolved, either Chunghwa Telecom has to cease its service or the legislation has to be modified by the end of 2005. 4.4 Cable Industry After getting a cable television license in late 2003 from the GIO, Chunghwa Telecom’s MOD service was launched in 2004 which certainly more or less impacted cable


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television market. In order to compete with Chunghwa Telecom, cable television operators launched several competitive campaigns. Cable television multiple system operators (MSOs) aggressively compete with MOD business. For example, China Network Systems (CNS) promoted its first interactive digital television platform in 2002 and Eastern Broadcasting Corporation (EBC) launched digital television pay-channel services in 2003. Meanwhile, the cable operators might cooperate with cable channels to boycott the programming sources to Chunghwa Telecom. However, compared to Chunghwa Telecom, CNS and EBC can offer a variety of contents, but it is still difficult to compete with Chunghwa telecom on the fee for the Set Top Box and channels line-ups (Lin, 2004). Table 1: The advantages and disadvantages in operating IPTV between cable TV & Telecom operators

Advantages Disadvantage Cable TV (CNS&EBC)

*Content *Broadband (550 MHZ) *Subscribers: 82% *Flexible business culture

*Less Internet safety *Less stability *Problem: upgrading Internet & higher cost

* Insufficient Capital *Policies: restriction price of STB

Telecom (Chunghwa Telecom)

*Huge Capital *The ratio of ADSL is higher than Cable Modem. The Internet ratio is higher than 90%

*The Interaction of video on demand is higher * Get more benefit from policies

*Difficult to get content sources

*Lack of experiences in video market due to part of ownership belongs to government. * conservative business culture

Source: (Lin, 2004) 4.4.1 Eastern Broadcasting Corporation (EBC) EBC belongs to Eastern Multimedia Group (EMG) which was established in 1995. The organizational structure of EMG is listed in Table 2. Since 1995 EMG entered the cable television market, today with more than 1.5 million subscribers, except for the mainland China and Japan, EMC is the leading Multiple System Operator (MSO) in Asia and also is ranked as the 12th largest cable television MSO in the world.


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Table 2: Organizational structure of EMG Chinese Taipei cable TV system channel investment Chinese media storehouse

Cable TV system design and plan

Internet engineer and website operation and development

Eastern Multimedia Company (EMC)

Cable TV operation and management consultant advisor

Publishing and multimedia marketing

Eastern news channel

Eastern comprehensive channel

Eastern entertainment channel

Eastern movie channel Eastern

Broadcasting Company YoYo TV

channel

Eastern network channel

Eastern foreign movie channel

Chun-Du cartoon channel

Build up oversea strategic alliance TV advertisement production Eastern

Advertising & Marketing Co., Ltd , ETAM

Media advertisement business in TV, radio, newspaper, magazine, and internet

Eastern Broadcasting Company (EBC)

Eastern newspaper

Online real-time video news

Online-newspaper

Chinese news information service

Shopping channel Mail-order service Eastern Home Shopping Company (EMC) B2C E-commerce

(ETStore.com) Foreign shopping channel agency

Eastern Broadband Telecom (EBT)

Broadband service

Online information center

Broadband platform and content provider

other affiliates Power 98.9 Radio Station Min Juan NewspaperSource: EMG.http://www.emg.com.tw 4.4.2 China Network Systems (CNS) CNS is a leading cable television service provider in Chinese Taipei. It is a join venture between Start Group and Koos Group. The former is ranked as the best in providing multiplatform content and service in Asia. The latter is a leading business conglomerate in Chinese Taipei. In a highly competitive cable television market, CNS was the first one to announce its ability to provide Digital Cable TV service in Chinese Taipei in 2002 (Lin, 2004).


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There are some advantages and disadvantage of EMC and CNS to compete with Chunghwa Telecom’s MOD. In terms of set-up box, EMC proposed to sell its set-top box for NT$5,000. The price is higher than the NT price of 3,500 set by the Taipei City Cable TV Rate Commissions. Similarly, CNS proposed to sell a set-top box for NT$6,000. The price is much higher than the NT price of 3,500 set by the Taipei City Cable TV Rate Commissions (Lun, 2004). However, with huge capital Chunghwa Telecom has to promote the MOD with a free Set Top Box. Obviously, it is difficult for EMC and CNS to win the price war. Nevertheless, in order to compete with Chunghwa Telecom’s MOD, EMC and CNS put more effort into producing more extensive and diverse content to earn more subscribers. 4.5 Summary Chunghwa Telecom is facing two big challenges in promoting its IPTV service. One challenge is the uncertainty of the regulation. If IPTV is regulated by the cable radio and TV law, then accordingly, any party, government or armed forces cannot be involved in the ownership of media companies. Chunghwa Telecom, of which 48% is owned by the government, will be forced to stop operating IPTV businesses. The other challenge comes from cable television operators which have a variety of television contents and programming sources. In providing competitive prices to draw subscribers’ attention, Chunghwa Telecom needs to put more effort in designing abundant content and in cooperating more closely with content providers. The success or failure of IPTV service depends largely on Chunghwa Telecom’s ability to keep a balance between affordable prices and diverse contents. 5.0 Conclusions Historically, TV and telecommunications are regulated differently based on the nature of technologies. TV networks were originally designed for transmitting video signals and, by their nature, are a one-way medium. On the contrary, telecommunications networks used to be narrowband, two-way transmissions that were not suitable for video applications. However, with the advancement of new technologies, both cable and telecommunications networks are now readily available for broadband applications. There is now no clear technological divide between TV and telecommunications networks. Despite obstacles, convergence is inevitable. However, although the formal structures are different, the same conundrum presents itself in both China and Chinese Taipei. Although Chinese Taipei has decided to put IPTV under the jurisdiction of cable regulator, it does not touch on the underlying question of what IPTV’s regulatory status


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should be. The ownership requirement for media firms poses another threat on IPTV as well. In China, historically, the government has conflated the content of broadcasting (programs) with the means of its distribution (assigned frequencies in the spectrum). When emerging technologies, such as IPTV, enable telecommunications to penetrate the closed television system by offering alternative ways of distribution, the content regulator is perplexed. As a result, the most natural reaction from the regulator is to make the “walks like a duck” argumentxi. Although the issue of propaganda has helped the SARFT to secure its control over IPTV, there is hardly any consensus among interested parties. The current regulation regarding IPTV is tentative at best. Essentially, China and Chinese Taipei are facing the same regulatory dilemma. Just because IPTV can be used to deliver “video” or “content”, it does not make it a “television broadcaster” or a “cable” company. New regulatory approaches are needed in both China and Chinese Taipei. One solution is to adopt the so-called layered model, which substitutes for the service-based approach of the current model an approach based on technical nature of the underlying, multi-purpose networks used to provide those services. The layered model has been discussed among telecommunications policy researchers for several yearsxii. According to Joshua Mindel and Douglas Sicker, “The aim of the Layered Model is to provide a consistent and modular approach to telecommunications policy that reflects the reality of network design, market power, and business arrangements.”xiii Layered model regulation has many attractions. The engineering approach of this model makes it inherently technology-neutral. In addition, evidence has shown that current communications technologies will be unified under the umbrella of Internet Protocol (IP). Thus, the layered model should fit well in the long term. However, given its immaturity at the current stage, its concept might take years to become understood by policy makers. Another solution is to simply treat IP-enabled services differently. This approach would exempt IP-enabled services from any economic regulations. Supposedly, this approach should facilitate the transition of the industry from old legacy networks to the new all-IP networks. All of these proposals are under discussion. Irrespective of which alternative is chosen, it is clear that that some kind of major, possibly radical, reform is needed in the structure of the regulatory agencies to adapt to technologies like IPTV, and that given the global momentum of these technologies, these fundamental decisions need to be taken sooner rather than later to give direction to the market and the public.

References 18 Chinese Cities to Test Run IPTV Business. (2005). SinoCast China Business Daily

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ABI Resarch: China's IPTV Market to Boom in 2007 Despite Outstanding Issues. (2005). Wireless News, 1.

Alcatel Shanghai Bell, SMG Launched IPTV Lab. (2005). SinoCast China Business Daily News, p. 1.

Andrew, B. (2004). China Hits Snag in Goal for Digital-TV Standard. Wall Street Journal, p. B.4.

CCTV Bets Big on IPTV Business. (2005). SinoCast China Business Daily News, p. 1. CDB Falls Into Trouble in Making Loans to Cable TV Industry. (2005). SinoCast China

Business Daily News, p. 1. China Accelerates Popularizing Digital TV Sets. (2004). SinoCast China Business Daily

News, p. 1. China IPTV: Another View (2005). Inside Digital TV (Vol. 8). China to Be World's Largest IPTV Subscriber Market by 2010. (2005). SinoCast China

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EAST ASIAN COUNTRIES. Gazette, 67(3), 211. Guo, Z. (2003). Chinese Media after China’s Entry into WTO. Javnost—The Public,

10(4). LIu, P. (2005). Netcom cross line, IPTV awaits change 网通“越界” IPTV 岁末变局

[Electronic Version]. China CBINEWS 电脑商情报. Retrieved 9/13/2005 from http://www.cbinews.com/vendor/showcontent.jsp?articleid=13416.

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giant cable operator founded 广电与电信联姻有线电视网络巨鳄浮出水面 [Electronic Version]. China Youth 中国青年报. Retrieved 3/25 from http://it.people.com.cn/GB/8219/45424/45746/3270330.html.

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between Chunghwa Telecom and cable television operators.中華電信ＭＯＤ被迫暫

緩-電信與有線電視衝突升到最高點. New Taiwan 新台灣, 337.

http://www.newtaiwan.com.tw/bulletinview.jsp?period=337&bulletinid=2506 ENDNOTES i The authors thank Prof. Taylor for his valuable suggestions during the drafting of this paper. ii The discussion in this paper of the situation in China and the introduction part are re-edited, updated and expanded version of parts of a paper, IPTV: A COMPARATIVE STUDY OF THE UNITED STATES AND CHINA,, delivered by Liu, C. and Taylor, R. at the “Innovation and Media: Managing Changes in Technology, Products, and Processes” workshop in Sweden, November 2005,and can generally be considered to refer to that paper, in which additional references may be found.

iii SMG’s consists of 11 analog TV channels, 90 digital paid cable TV channels, a full broadcasting Internet TV service, along with 10 analog and 19 digital radio services. The group also operates and owns 5 sports centers and 14 cultural art centers. Other areas of operation include newspapers, magazines, news websites and audio-visual


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publishing. The group has around 5,200 staff, with capital assets totaling RMB 11.7 billion.

iv Decree 39. 2005 v By the end of 2004, European’s DVB-T had gained 9 contracts in China, while the domestic Tsinghua University’s DMB-T had signed 7. Shanghai also began to test trial Shanghai Jiaotong University’s ADTB-T standard. vi Oriental Cable Network Co. operates the world largest metropolitan cable network in Shanghai, China vii Alcatel offers the communications solutions to telecommunication carriers and Internet service providers in establishing a user-centric broadband world. viii Source from the Taipei Times. The Taipei Times launched in 1999 is an international English-language newspaper. The purpose is "Bringing Taiwan to the World, and the World to Taiwan." The Web Site of Taipei Times has more than 220, 000 daily visits. http://www.taipeitimes.com. ixSource from the website of Chunghwa Telecom. http://mod.cht.com.tw/MOD/Web/index.php. x Legislative Yuan is the legislative body of Chinese Taipei xi In the U.S., the shorthand for this is the “walks like a duck” theory, which asserts that if something walks like a duck, and quacks like a duck, then it’s a duck. xii Recently, this model has been advocated by MCI (Whitt, 2004). xiii Also see Sicker, D. and Mindel, J. "Refinements of a Layered Model for Telecommunications Policy", Journal on Telecommunications & High Technology Law, 2002. Sicker and Blumensaadt, "Misunderstanding the Layered Models", Journal on Telecommunications & High Technology Law, 2005.

IPTV: Experiences of China and Chinese Taipei

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