Multiple Constraints Leave FTTH in a State of "External Heat, Internal Chill"

At the end of 2011, influenced by the anti-monopoly investigation, "Broadband China" rapidly expanded from coastal provinces and cities to the whole country. This placed enormous financial pressure on telecom operators, who also had to face pressure from radio and television networks, the State Grid, and multiple parties across the industry chain.

The industry named 2011 as the first year of FTTH in China. In February 2011, China Telecom launched the "Broadband China · Optical City" strategy, aiming to achieve fiber-optic coverage in all cities within three years, with user access bandwidth to be significantly increased to 10M, 20M, or even 100M within three to five years, and tariffs to enter a "jump period" in about three years. To implement this strategy, China Telecom deployed FTTH on a full scale in Shanghai, Jiangsu, Zhejiang, and Guangzhou, with other provinces and cities also starting construction successively.

Under this strategic plan, China Telecom's FTTH construction entered the fast lane. In November, as the pioneer of national broadband construction, Shanghai Telecom announced that its FTTH users exceeded one million. During the same period, China Telecom's FTTH users approached four million, surpassing South Korea and approaching Japan and the United States. However, the operators' FTTH path was also full of twists and turns: on November 9, China Telecom and China Unicom were embroiled in an "anti-monopoly" investigation; in December, the China Internet Network Information Center raised the issue of "fake broadband."

Funding Becomes the Biggest Constraint on FTTH

Although it briefly became the focus of negative attention, the FTTH process did not stall. At the end of November 2011, Beijing Unicom and Shanghai Telecom announced free upgrades of broadband to 10M and 20M for fiber users; between December 2011 and January 2012, Xinjiang, Anhui, Jiangmen, Shaanxi, Gansu, Ji'an, Inner Mongolia, Hunan, Chengdu, and other regions successively issued broadband speed-up plans, and Guangzhou Telecom even proposed a plan to upgrade users to 100M broadband for free.

On December 26, 2011, Miao Wei, Minister of Industry and Information Technology, stated at the National Industry and Information Technology Work Conference that broadband speed-up would be a priority for the Ministry in 2012, and that further reductions in Internet access tariffs would be promoted. Speed-up and price reduction became the primary task for operators in 2012.

Large-scale construction inevitably requires huge investment, yet funding has become the primary issue troubling FTTH deployment. In Shanghai alone, investment in broadband network construction from 2009 to 2011 exceeded RMB 26 billion. It is easy to imagine that large-scale FTTH construction nationwide would require strong financial support. Therefore, operators have repeatedly called on the state to introduce a broadband strategy and provide policy support.

In 2011, China Telecom invested over RMB 40 billion in FTTH, mainly in Shanghai, Jiangsu, Zhejiang, and Guangzhou. However, it is reported that a few local operators exhausted their annual budgets in the first half of the year, leaving operators financially stretched.

---Excerpted from C114

The Predicament of the Industry Chain

Consolidating network advantages requires long-term efforts by operators, who also need to provide more service packages and better user experiences. But what is clear at present is that the huge investment in FTTH has brought substantial profits to upstream and downstream vendors in the industry chain: hundreds of billions of yuan in PON bidding each year, and nearly 100 million fiber-core-kilometers of fiber procurement. Mao Qian, former Chief Engineer of the Wuhan Research Institute of Posts and Telecommunications, stated: "Although competition is fierce, optical communications vendors can still maintain substantial profits."

However, at the end of last year, domestic cable manufacturers Changfei, Hengtong, ZTT, and Futong collectively voiced protests, arguing that the current reverse centralized procurement model adopted by operators had disrupted market order, leaving manufacturers without profits, and that the phenomena of "passing off inferior goods as quality products" and "bad money driving out good" were very serious in the market. The manufacturers generally believed: "The supply chain for fiber production materials will be constrained by foreign countries, and supply falling short of demand is a foregone conclusion; with long-term low-price centralized procurement, fiber has become unprofitable." They held that a reasonable centralized procurement system should be established for the new round of procurement.

Compared with fiber manufacturers' entanglement over prices, the difficulties encountered by system equipment vendors are even more troublesome. In 2011, the long-hyped EPON/GPON dispute finally became clear: GPON was jointly recognized by the three major operators, and Wei Leping explicitly stated: "All future FTTH construction will adopt GPON." With this, GPON entered the fast lane. A few vendors, however, had not anticipated this outcome and had bet on EPON, leading to a late transition and leaving them at a disadvantage in future GPON competition. Although EPON could still maintain a decent share based on early accumulation, missing the GPON mainstream truly made these vendors sigh with regret: "One less ticket for 2012."