Communications & Networks

For 1H 2008, China's DSL users have numbered 60.237 million, up 25.7% YOY. China's DSL equipment revenues reached 3.204 billion Yuan, up 2.4% YOY. CCID Consulting projects that by the end of 2008, China's DSL users will reach 68 million, and DSL equipment revenues will reach 6.3 billion Yuan. However, growth is slowing for DSL users and especially for DSL equipment revenues as prices continue to drop.

China's DSL user growth has been driven by China's overall efforts of informatization, and in particular, the government's Rural Information Broadband Coverage Project, DSL and related technology maturity, and decreases in broadband products and taxes. Broadband and the Internet has improved China's business efficiencies and impacted people's lives. As DSL becomes more widespread in China, so does the increase in demand for DSL equipment.

To meet user demand, China's telecom operators will need to buy and upgrade their DSL equipment, while vendor seek to meet telecom needs, but with more competitive pricing.

Evolutionary network upgrades is a key factor in DSL equipment growth over optical.

Optical access and FTTH has started its large scale deployment in China. Nonetheless, FTTH will help drive, rather than completely replace, DSL technologies.

1. While China has started optical deployment, the user scale is still relatively small. It will take time before large scale coverage is realized.
2. DSL today can satisfy most of Chinese users' daily broadband application demand.
3. ADSL and FTTH are not mutually exclusive. FTTH+ADSL deployment modes are forming, and enables telecom operators a smoother evolutionary path.
4. With over 60 million existing DSL users, telecom operators need to be cautious of any technology migration that would be too disruptive of the existing user base, while at the same time, grow new DSL customers.

The key factor: High FTTH comparative cost over DSL.

High FTTH deployment cost has been a barrier to its more widespread adoption. In China, total FTTH cost is 2,500 – 3,000 Yuan per home. However, the upgrade cost for ADSL from 1MB to 4MB rate is less than 500 Yuan. Moreover, ADSL price-performance ratio will only improve with more technological and standards maturity, service/equipment performance improvement, and increasingly less expensive costs.

Looking to 2H08: Telecom operators will have customized needs which DSL vendors should fulfill.

China's telecom operators face infrastructural differences due to China's varying regional development and operators' own network deployment staging. China's urban regions are far more developed than the most rural regions. Therefore, equipment needs and compatibility addressing these varied requirements is paramount. At the same time, China's telecom operators need to consider a consistent and unified management of DSL, FTTH, WLAN, and the evolution to FMC (fixed-mobile convergence).

Given that China's telecom operators comprise over half of DSL equipment vendors' demand, it is important that vendors address the specialized needs of operators and to help operators achieve a good rate of return. Huawei, ZTE and Star-net are good examples in doing just that. Moreover, in 1H08, Huawei, ZTE and ASB have been strong in the central office DSL equipment category, while Star-net and TAYA has been strong at the user-end.

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

Ó 2008 CCID Consulting Co., Ltd.