With mobile TV services in the flagship market of South Korea floundering and with few signs that operators anywhere else have found a successful formula for launching such services, most operator and vendor delegates at the recent CommunicAsia Summit in Singapore struggled to find enthusiasm for the fledgling industry.

The key question is which business model will work best for commercial mobile TV services, and the industry does not seem anywhere close to coalescing around an agreed model.

Some operators and vendors say that mobile TV should be subscription-based, to offer a reliable revenue stream; others say an ad-supported model is the most viable option; and still others argue that a combined pay/advertising approach is the way forward.

Figures from South Korea seem to suggest that both pay-based and ad-supported models have critical weaknesses, which would also apply in other markets in the region. A lot more experimentation and creativity from operators might be required to find the right model.

Those promoting the idea of a pay-based service say that only by charging for content can a business model work. They say operators must team up with content firms to acquire premium content - most particularly sports - that people will be willing to pay a monthly fee to view or even pay for on a per-view basis.

But this line of thinking seems flawed, given that there is a limited amount of blue-chip content for which people will be prepared to pay, most notably live sports events - such as English Premier League soccer games - or highlights of them.

The problem is, of course, that content-rights holders have become adept at exacting a premium price for key sports rights, meaning that mobile TV operators would have to recoup their heavy capital investment by charging high subscription fees.

This is a problem, since the high churn rate experienced by TU Media in South Korea seems to suggest that mobile TV subscribers are extremely price-sensitive.

TU Media subscribers pay just KRW13,000 ($12.60) a month for the service but have been leaving in droves after their initial one-year contracts finish, forcing the firm to offer significantly reduced subscription rates to keep subscribers from deserting the service.

TU Media’s experience suggests that mobile TV subscribers will be willing to pay only so much for services and that although blue-chip sports content has a crucial role to play, operators must find a way to acquire the content without paying excessive prices.

On the advertising side of the debate, many delegates at CommunicAsia argued that an ad-based strategy would work best for mobile TV platforms but that operators would have to be extremely creative in their approach.

Delegates uniformly agreed that the idea of transporting the traditional TV-advertising model to mobile was deeply flawed and that mobile TV operators would not be able to sell regular 30-second ad spots on mobile TV services, given the different nature of the platform.

One senior mobile operator executive said that he was skeptical of the ad-supported model, because mobile TV users tend to watch only 10-15 minutes at a time and it would be hard for operators to interrupt that short window with advertising without disrupting the user’s experience.

But other delegates, including those from both operators and vendors, were more hopeful that a successful advertising model could be built, though the consensus was that ads would have to be shortened to suit the mobile TV viewing experience and that they would have to be carefully targeted at specific user groups.

These are both valid points, but the elephant in the room is the fact that many mainstream advertisers are skeptical of mobile TV as an advertising model - and some might not be aware of its existence at all - meaning that mobile TV operators will need to work closely with media buyers and ad agencies to craft their message.

This might mean offering heavy price cuts in the short term to persuade advertisers to seize the unique opportunity to reach users that mobile TV advertising offers and then trying to turn these advertisers into long-term customers.

There is no magic bullet that will provide a successful business model, but there seems to be a reasonable possibility that an attractive model can be built if operators can match the largely young and technology-friendly subscribers viewing mobile TV on their handsets with advertisers desperate to reach such a market.

Intriguingly, conference delegates also discussed the possibility that broadcast-type mobile TV services might never fully take off in the region and that Multimedia Broadcast Multicast Service video streaming over high-speed HSPA and future LTE networks would dominate the market.

The debate has strong proponents on both sides. Many vendors back an MBMS approach, saying that experience shows that broadcast-style services are not what users are demanding and that the more-narrowly targeted VOD-style content being offered on HSPA networks is already proving hugely popular.

The pro-MBMS argument also runs that with HSPA/LTE networks already in place and offering voice, data and video services, why go to the expense of deploying a terrestrial or satellite-based mobile TV network, especially with the expense involved in creating high-quality in-building reception?

Although this is a persuasive argument, it has shortfalls, most notably the fact that even LTE networks will still be point-to-point networks and will be unequipped to operate as point-to-multipoint services, which a full broadcast mobile TV service would require.

The broadcast-mobile-TV lobby argues strongly that the core strengths of broadcast-based networks cannot be replicated by even high-speed mobile networks, which would not be able to support the huge demand that’s sure to arise for broadcasts of live sports and important news events.

In reality, the MBMS-vs.-broadcast-mobile-TV debate is spurious, given that both technologies are going to be on the market, and it will be users who determine which is the more successful.

At this early stage, it looks likely that subscribers and operators will use high-speed, quality video streaming for VOD-based “snacking” on content and that full broadcast mobile TV will be used for some live events, for which only a broadcast-style service can supply the quality of service required.

 
 
 
 
PCCW Chairman Richard Li must have been out of the business pages for at least six months, so it was only a matter of time before he came back to dominate the headlines once again.

Already well known in the region for being the son of billionaire Li Ka-shing, head of the Hutchison Whampoa investment group, Li has become one of the highest-profile investors in the region since his Pacific Century CyberWorks (PCCW) outfit paid $28 billion to Cable & Wireless to assume control of Hong Kong Telecom in 2000.

After a period of relative quiet, Li is back in the news, with a grand plan to consolidate the media and telecoms assets of PCCW into one firm, HKT Group Holdings, of which he would sell 45 per cent to new investors and possibly move toward an IPO in a couple of years.

PCCW is inviting proposals from investors interested in the 45 per cent stake, with local reports saying the deal has already drawn interest from international players, including several mainland companies, though private-equity players are reportedly shying away from the deal because it does not given them a controlling stake.

The proposed deal has already created a storm of publicity, given that Li’s previous attempt to sell a stake in PCCW two years ago created a furor and ended in abject failure.

In 2006, Li tried to sell PCCW to private-equity firms TPG-Newbridge and Macquarie Bank, only to have the deal blocked by China Netcom, which owns 20 per cent of PCCW. Netcom nixed the deal after its mainland-government backers refused to countenance the sale of PCCW to foreign owners, and Netcom was upset that Li had invited bids for PCCW without obtaining its consent.

The bad blood has almost certainly cost Li the chance to get a slice of any media or telecoms opportunities that emerge in the mainland any time soon, though PCCW says the latest deal has received the approval of Netcom’s directors.

The misery of the TPG-Newbridge/Macquarie Bank deal’s failure was compounded by the rejection by shareholders of an alternative deal, in which Li would have sold his 23 per cent stake in PCCW to long-time family associate Francis Leung for $1.17 billion.

The new deal on the table does not involve the dilution of Li’s stake in PCCW, and he has already told local press that he has “no intention” of reducing his stake in the firm.

The thinking behind the newly proposed deal seems to be that selling the stake in HKT would “unlock the value” of the firm’s assets and generate a cash pile with which PCCW could compete for any telecoms assets that became available in the international market, most notably in Asia Pacific and the Middle East.

Li has already said that the global credit crunch has reduced the prices being asked for global telecoms assets, making M&A activity more feasible for the firm.

But despite Li’s optimism, it looks like PCCW might be trying to hunt big game armed with only a pistol if it tries to take on the big boys in the cutthroat international M&A market, given that most analysts say that the 45 per cent stake in HKT would raise only about $3.7 billion.

Considering that Indian operator Reliance is having to stump up about $45 billion for South African firm MTN Group, PCCW will have to shop in the cut-price stores, not the high-class boutiques, if it wants to play the M&A game.

To be fair, PCCW does bring a lot more to the M&A table than some of the pure private-equity investors, whose cold, hard cash has limited appeal to some regional telcos on the block, which crave the expertise and brand power that an alliance with Vodafone or Hutchison could bring.

PCCW has one of the best quadruple-play offerings on the planet, with 2.6 million fixed-line telephony subs, 1.23 million broadband subs, 1.07 million mobile subs and 882,000 customers signed up to its world-class IPTV service.

The firm has built a magnificent network platform and is expert at getting the most out of converging communications networks - traits that other operators around the region would be eager to get their hands on.

However, although PCCW does have a great story to tell, it does not bring to the table the kind of market scale that other telcos, such as Vodafone, Hutchison and SingTel, can. That is where PCCW’s lack of focus on developing any kind of serious regional M&A strategy in the years just after the 2000 acquisition of HKT has really come to haunt the company.

The $28 billion megainvestment in HKT, followed by the dotcom crash and 90 per cent drop in PCCW’s share price, took the financial wind out of the company and rendered it a mere spectator as regional rivals SingTel, Telekom Malaysia and Indian operator Bharti Airtel were busy getting in on the ground floor of the regional mobile market.

PCCW has created a truly impressive product in its home country, but the limited Hong Kong market can never give the firm the kind of growth it needs to be a serious player, especially since the golden doors to mainland China treasures have remained firmly closed.

As a result, PCCW is going to have to be extremely creative if it wants to be a serious M&A player, and it might have to team up with a bigger force in the market if it wants to share some of the few spoils that are left globally.

 
 
 
 
China’s government has finally announced details of its restructuring of the local telecoms market, bringing to an end years of speculation, rumors and theorizing about its content.

Ironically, the announcement was somewhat of an anticlimax, because the details of the exercise matched those that had been steadily leaked by the government since the beginning of the year.

Nonetheless, the restructuring remains one of the biggest stories of the year, because it is unlikely that any other government would so brazenly move its major telecoms players around like pawns on a chess board.

Under the broad terms of the plan, mobile market giant China Mobile will acquire small fixed-line player China Tietong (formerly known as China Railcom), and leading fixed-line player China Telecom will buy the CDMA-network operations of second-ranked mobile operator China Unicom. China Unicom will maintain its GSM operations but merge with second-ranked fixed-line operator China Netcom.

On announcing the restructuring, the Ministry of Industry and Information (MII), the Ministry of Finance and the powerful National Development and Reform Commission (NDRC) said it was designed to address the unbalanced competition in the telecoms market, in which China Mobile and China Telecom dominate their respective sectors against much weaker rivals.

The three bodies also said they hoped the restructuring process would create three strong, integrated operators that would all be allocated 3G licenses.

But the sting in the tail came via a comment in the bodies’ joint statement: that they wanted the restructuring process to “focus on self-developed technologies and their application, so as to improve the nation’s innovation capabilities.”

Peeling back the bureaucrat-speak, this means that the three groups want homegrown 3G technology TD-SCDMA to be as widely adopted as possible, and this is the most crucial part of the entire restructuring imbroglio.

China Mobile would still be the most powerful operator by far in the market after the restructuring exercise, and might be even more powerful, in light of its acquisition of China Tietong’s fixed-line assets.

By contrast, the prospects for China Telecom as a CDMA operator remain sketchy: The firm has little experience in the wireless space and cannot be expected to develop overnight into a fearsome competitor to market giant China Mobile.

The China Netcom/China Unicom merger is similarly fraught with potential difficulties, given the complexity of integrating two huge companies with thousands of employees and billions of dollars of assets.

The creation of a three-player market will not on its own be enough to bring parity to the telecoms market and slow down China Mobile’s domination, especially since the government’s proposed “asymmetric” regulatory policies look far less interventionist than those implemented in other markets, South Korea in particular.

The real threat to China Mobile comes from not knowing how far the government will go in using the company to push TD-SCDMA into the market.

Most analysts agree that China Netcom/China Unicom will be granted the much-prized WCDMA license, while China Telecom will receive a 1xEV-DO license for its CDMA network. And as the strongest player in the market, China Mobile will receive a TD-SCDMA license, analysts say.

Some analysts suggest that because of TD-SCDMA’s less-than-stellar performance in trials, the government will accede to China Mobile’s wishes and grant it a WCDMA license alongside its TD-SCDMA one.

China Mobile would then be able to roll out a nationwide WCDMA network followed by a much smaller TD-SCDMA network, based mainly around the largest cities. This would create huge capex savings by removing the need for two nationwide networks.

Sounds like an ideal solution, right? Not so fast.

The mainland government is certainly not naive enough to have deployed vast financial and political resources to develop TD-SCDMA, only to allow China Mobile to shuffle the technology toward the back door by granting it a WCDMA license.

TD-SCDMA is not necessarily the government’s last chance to push a homegrown mobile standard: Domestically developed LTE TDD-based technologies are a possibility, but not for a while.

China is about five years behind the rest of the region in deploying 3G services. It is clear that any move toward LTE is still a long way off and that the government would be reluctant to allow foreign technologies, such as WCDMA/HSDPA and EV-DO, to have the market completely to themselves, even in the medium term.

The government clearly sees the restructuring as a watershed in the telecoms market and might well choose this moment to make a powerful stand on TD-SCDMA by forcing China Mobile to go it alone with the technology, at least for an initial period, to give TD-SCDMA the best chance of mass adoption.

What’s important to remember is that although China is far behind in TD-SCDMA development, senior members of the government - well above the level of those calling the shots at the MII or NDRC - are pushing hard for locally developed technologies to be advanced at the expense of foreign rivals’.

The MII and NDRC would be loath to open themselves to embarrassment in front of their political bosses by allowing TD-SCDMA to be sidelined by China Mobile. They see it as a political obligation to give the technology the best possible chance of success.

That does not, of course, mean the government is willing to risk destroying China Mobile’s intrinsic value by subjecting the firm to onerous obligations with respect to TD-SCDMA.

But it does mean the government will expect the operator to do its part to make TD-SCDMA a success, given that it has enjoyed such a favorable regulatory ride in the past decade, which is what helped turn it into such a giant in the first place.

 
 
 
 
Along with giants China and India, Thailand is one of the few major mobile markets in the region that has yet to launch 3G services. But after years of gridlock in the licensing process, Thailand’s 3G market might finally be on the move, albeit at a potentially heavy price to operators.

The problem for local mobile operators is that the arrival of 3G services is taking a hazardous course, with operators being offered the possibility of a quicker-than-expected launch if they use already allocated spectrum.

Local operators have been waiting patiently for several years for the National Telecommunications Commission (NTC) to issue 3G licenses in the 1.9-2.1GHz spectrum bands, and the regulator had been expected to finally issue licenses in 4Q08, after overcoming numerous regulatory and legal hurdles.

But in recent weeks a new plan has emerged - with the clear support of newly appointed communications minister Man Patanotai - that would see the big three mobile operators, Advanced Info Service (AIS), Total Access Communications (DTAC) and True Move, launch 3G services in the 850MHz and 900MHz spectrum bands.

Second-ranked DTAC is planning to use some of its dormant 850MHz spectrum to launch trial 3G services, and, not to be outdone, market leader AIS is planning to use its 900MHz spectrum to launch its own trial 3G services.

Meanwhile, third-ranked operator True Move has eagerly accepted the not-altogether-altruistic offer from its concession holder, the Communications Authority of Thailand (CAT), to lease it spectrum in the 850MHz band in which to launch its own trial 3G services.

DTAC also receives its operating license from the CAT, and AIS receives its license from the Telephone Organization of Thailand.

The big advantage for the CAT and TOT if the operators launch 3G services using their existing spectrum is that they would remain key players in the local telecoms market.

If the NTC were to allocate 3G spectrum in the 1.9-2.1GHz band to the big three operators, the move would most likely freeze the CAT and TOT out of the mobile sector, with the three operators likely to migrate services completely to the 1.9-2.1GHz spectrum bands and break their links with the CAT and TOT.

In the often indistinguishable world of Thai commerce and politics, where the government’s influence can never be understated, the communications minister and several other key ministers are enthusiastically pushing the new 3G plan at the expense of the NTC’s long-delayed 1.9-2.1GHz-licensing process.

Local observers say that as a result, the NTC has taken heed of the political winds and is likely to try to pass the buck on 3G licensing to its successor, the National Telecommunications and Broadcasting Commission, to avoid a potentially messy political fight.

But with the NTBC not expected to come into being for at least a year, local market observers say licensing for 3G spectrum in the 1.9-2.1GHz band could be delayed until at least 2H09, and the launch of services could be delayed until 2H10, if it happens at all.

Some senior mobile executives from the big three operators have already publicly backed the new 850/900MHz plan, saying that it would enable them to introduce 3G services sooner than if they were to wait for the NTC/NTBC 3G-licensing process to play out.

But although the thought of launching 3G services after years of missing out on potentially lucrative mobile data and wireless-broadband revenues - particularly since fixed-line broadband has low penetration in Thailand - would be enticing, the operators might be missing the larger picture.

Despite the frustration of waiting for the spectrum to be allocated, the operators must remember that the 1.9-2.1GHz band is the de facto spectrum band for 3G deployments on a global basis and that the 850/900MHz bands are being used by comparatively few operators worldwide.

As a result, the economies of scale that operators would be able to benefit from are much greater in the 1.9-2.1GHz band than in the 850/900MHz bands, and that will be crucial in terms of handset pricing and the cost of network deployment.

Affordability is a major factor in low-income markets, such as Thailand, and if 850/900MHz handsets are even US$25 a unit more expensive than their counterparts on the 1.9-2.1GHz band, 3G take-up could take a huge hit.

Speaking off the record, some operator executives have speculated that their public support for the 850/900MHz 3G launch could actually spur the NTC to speed up the 1.9-2.1GHz-spectrum-allocation process.

That bet is a risky one, given the political weight that is already behind the 3G-launch process for the 850/900MHz bands. And if early indicators are correct, the NTC might actually be relieved if responsibility for the 3G-licensing process is taken off its hands.

If the operators do end up launching services in the 850/900MHz bands, there is a real possibility that the political will for the NTC/NTBC to continue with 3G licensing in the 1.9-2.1GHz band will disappear and that Thailand will end up launching 3G only in the 850/900MHz bands.

The big three operators, all of which have suffered to various degrees from the complex and anachronistic licensing and regulatory structure under which the CAT and TOT act as both license-granting bodies and industry players, should also question whether they really want to keep the CAT and TOT as part of the game.

One of the biggest advantages of launching 3G services in the 1.9-2.1GHz spectrum band via the NTC’s licensing process would be the chance it provides to cut the CAT and TOT out of the loop and have operators licensed and controlled by a single, independent regulator. Launching in the 850/900MHz bands means keeping the CAT and TOT in the game.

After such a long wait, the temptation of launching 3G services before year-end must be enormously appealing to mobile operators, but the likely risks of such a move also need to be taken into consideration before they take the plunge.

The NTC has taken an inordinately long time to get 3G licensing up and running - and there may be more frustrations ahead - but the technical and political advantages of launching in the 1.9-2.1GHz band would be worth it in the long run.

 
 
 
 
The long-awaited restructuring of China’s telecoms market finally seems to be on the horizon, after the ruling State Council agreed last month to split up second-ranked mobile operator China Unicom and create three new integrated telecoms firms.

Under the plan, Unicom would merge with second-ranked fixed-line operator China Netcom and continue operating its GSM networks, while its struggling CDMA operations would be sold to fixed-line leader China Telecom. Mobile market giant China Mobile would buy out small fixed-line operator China Tietong (formerly China Railcom), giving the firm its own limited fixed-line infrastructure.

The timing of the restructuring remains unknown, though many observers say it will most likely occur in 4Q08, and the government has also not fully worked out how to execute the restructuring.

Nonetheless, the goal of the plan is twofold: to create three integrated operators that would operate with greater efficiency than is being demonstrated by the lopsided mobile and fixed-line markets, and to create significantly more competition as China moves toward fixed/mobile convergence (FMC).

The restructuring will probably be followed by the equally as anticipated 3G-licensing process, in which China Mobile will most likely be awarded a TD-SCDMA license and a WCDMA license, while China Netcom/Unicom receives a WCDMA license and China Telecom receives a CDMA2000 license.

Some analysts have said that a key objective of the National Development and Reform Commission, which devised the restructuring plan approved by the State Council, is to make sure that China Mobile’s strength is not compromised by the plan.

However, although the restructuring plan itself does not seriously affect China Mobile, it is clear that the firm will be massively disadvantaged if it is forced to offer the homegrown TD-SCDMA. Even if China Mobile is granted a WCDMA license in addition to a TD-SCDMA license, the government would almost certainly force the firm to focus on TD-SCDMA. (China Mobile has since announced plans to roll out TD-SCDMA in eight cities).

After all, the government has not poured hundreds of millions of dollars into developing TD-SCDMA just to allow China Mobile to put the technology at the back of the store. The government is going to want it front and center.

The idea has long persisted that China Mobile would be the best outfit to operate TD-SCDMA, because of its market strength. The firm added more than 7 million net subscriptions in January, out of total market net adds of 8.9 million, taking its subscription count to 376.4 million in a market of 540 million.

However, those who say China Mobile would not be overly burdened by TD-SCDMA are ignoring the realities that a TD-SCDMA rollout would place on the operator. Sure, China Mobile has extremely deep pockets, but the burdens imposed by TD-SCDMA - such as the new and unproven nature of the technology and the lack of global economies of scale of TD-SCDMA handsets - make its deployment an uphill struggle.

A lesser-quality service combined with expensive handsets could enable rival operators in the newly restructured market to bite back hard against the long-time market king.

China Telecom looks to be the main threat, if the restructuring and 3G licensing proceed as planned and the firm finally gets its hands on a full mobile license, albeit not the WCDMA license it would most like.

China Telecom will seek to bolster its dwindling fixed-line business by aggressively turning around Unicom’s struggling CDMA operations, almost certainly offering heavily discounted tariffs and discounted quadruple-play services.

And China Unicom will also probably be reinvigorated by finally being released from the burden of operating dual GSM and CDMA networks and will finally be able to launch a concerted attack on its longtime nemesis.

Although remaining at a clear financial disadvantage to its bigger rivals, Unicom should be able to use the significant global economies of scale generated by WCDMA to offer much more competitively priced handsets than anyone else. It should also be able to offer the widest and highest-quality range of 3G handsets in the country, given the supply of WCDMA handsets from multiple international and local vendors.

In addition to the disadvantages caused by TD-SCDMA deployment, the industry restructuring would leave China Mobile with a far weaker set of fixed-line assets than either of its rivals.

China Telecom is the runaway broadband-market leader, and even the underperforming Netcom has more than 21 million broadband subscriptions, and both firms have already launched commercial IPTV services.

In comparison, and even allowing for the fact that China Mobile has deployed some of its own fixed-line infrastructure, China Tietong remains a poor cousin in the fixed-line market and cannot compete as anything more than a niche operator.

Therefore, although some people still see China Mobile as a behemoth that cannot be budged from its pre-eminence, it is fair to say that the combination of burdening the firm with TD-SCDMA and the industry restructuring will place huge competitive pressures on the firm.

Given that China Mobile is one of the country’s flagship companies and that the government is eager to see it become a serious player in the global telecoms market, it will be interesting to see how the government reacts if China Mobile starts struggling.

The government might well end up caught between a rock and a hard place, with its commitment to seeing a successful TD-SCDMA rollout and a more balanced domestic telecoms market conflicting with its grand vision of China Mobile as a global giant.

Sooner or later, the government is going to have to make some difficult choices, because it cannot have its cake and eat it too on these strategic issues. It will have to decide whether China Mobile is to be a domestic guinea pig for TD-SCDMA or a global giant.

It really does look like, after years of allowing China Mobile to establish an unhealthily dominant position and of pursuing a hard-headed approach to TD-SCDMA development in the face of all available logic, China’s regulators will finally have to sit down to a banquet full of consequences.