1. Network Convergence Policy in China July 2012

2. Introduction In China, the regulation and development of telecom/internet networks and broadcasting networks remained largely separate until 2010 3-network convergence trials, now underway, will have major impact on how China’s IT infrastructure develops Outcome of China’s final choices for convergence will impact global equipment vendors, systems and applications developers, and content providers

3. Key Points China may merge regulators or require cross-investment to break regulatory and competitive log jam Key obstacles to convergence in China are political rather than technical Broadcasting and telecom regulators locked in long-standing turf war over convergence Telecom operators currently enjoy multiple advantages over cable companies in terms of convergence-readiness Reaching TV screens key to reaching the masses

4. Convergence in China Key obstacles to convergence are more political, less technical Power struggle between telecom and broadcasting regulators Cable TV network not yet ready as nationwide integrated interactive platform Cable network still 2~3 years from ready to compete with telecom network Telecom operators curbed by State Council policy

5. Regulators: Broadcasting vs Telecom SARFT also regulates video content on internet. MIIT also issues certification for STBs, TVs. SARFT MIIT Broadcasting Regulator Telecom /Internet Regulator Issues broadcasting related licenses Video content control Broadcast network planning Issues telecom, internet and IT licenses Telecom and internet network planning

6. SARFT protects cable operators under “safeguarding government mouthpiece” rubric MIIT has repeatedly lost to SARFT in struggle for power in convergence Convergence Key Battleground in Long-standing Turf War between SARFT, MIIT

7. State Council’s Convergence Plan 2010 ~ 2012 Broadcasting and telecom companies enter each other’s business domain in trial cities 2013 ~ 2015 Identify successful models and best practices and replicate nationwide 2016 ~ Allow free competition between broadcasting and telecom companies

8. Future Business Scope Fixed Line VoIP Phone Mobile Voice No Immediate Plans Internet Broadband Cable Broadband IPTV, Internet TV IPTV, Internet TV, Cable TV Mobile Video CMMB, Multi-screen Telecom Broadcasting

9. Telecom operators currently better positioned for convergence than cable companies

10. Telecom Operators Enjoy Revenue Advantage Telecom and Broadcast Network Operator Revenues

11. Telecom operators fully commercialized Broadcasting companies propaganda focused Telecom networks have nationwide scale Cable networks localized, fragmented Telecom Operators More Commercialized and Consolidated

12. Broadcasting Companies Enjoy Control of Video Content Production and Distribution Maintain control over all video content to TV terminals Produce bulk of domestic film and TV programming SARFT issues IPTV, Internet TV licenses only to broadcasting firms

13. 4G Promise for Developing TV Services Existing mobile video users exceed CMMB users 4G speeds promise broadcasting-quality mobile video

14. 4G Impact on Convergence Limited in Short Term Key obstacles to broad 4G commercialization in China Limited TD-LTE chips and terminals China Telecom, Unicom first need to recoup 3G capex MIIT wants slow transition to 4G to keep competitive balance 4G ？

15. Reaching TV Screens Key to Reaching the Masses Why TV? - 97% TV penetration vs. 38% Internet penetration (by 2011) - Priority and price: TV or STB first, then PC 3 ways to get to TV: Cable DTV, IPTV, and Internet TV

16. Cable TV Must Evolve to Remain Competitive with IPTV Cable TV network operators suffer from TV stations’ betrayal IPTV threat: content, VAS, marketing IPTV user base small compared to cable, but growing fast Mln

17. 2012 2015 Future Interactive Cable TV Network Development Plan Cable TV Network Still a Long Way to Go 26 of 31 provinces have completed or almost completed cable TV network consolidation by H1 2012 Bi-directional nationwide cable TV network still more than 3 years away Bi- cable DTV users 8% Cable broadband users 2% Cable TV Households 201 mln Cable DTV 59% Bi- cable DTV coverage 34%

18. Ideal IPTV Model Still Evolving 7 IPTV license holders work with local telecom operators BesTV leads IPTV development Old Model New Model CNTV controls sole national IPTV platform Local TV stations must connect their platforms to CNTV national platform Telecom operators must work with both CNTV and local TV stations BesTV lost leadership role to CNTV, and current role not yet clear

19. Internet TV: Born an Original, May Die a Copy Internet TV originally had no operator, relied on pirated content; now 7 operators and only legal content Internet TV lacks a clear, sustainable business model IPTV vs. Internet TV - IPTV provides a dedicated content line - Internet TV doesn’t offer live broadcasts

20. Possible Solutions to Break Regulatory and Competitive Log Jam SARFT, MIIT to merge ？ - Multi-screen technology complicating convergence turf battle and policy-making Cross-over investment - China Mobile may invest in CMMB operator - China Mobile may invest in national cable operator - China Mobile to obtain fixed-line license

21. Global Impact of China’s Convergence Choices Video Content Pace of converged network development key demand driver for domestic and foreign content Chinese content demand already influencing Hollywood global releases Equipment, IT solutions Convergence drives demand for smart terminals creating opportunities for: - Terminal makers - CA providers - Video/Audio codec developers

22. Conclusions Commercial roll-out of 4G at least 3 years away SARFT will continue to limit IPTV growth until a bidirectional national cable DTV network is complete or the regulators are merged Internet TV likely to die, as lacks sustainable business model China’s convergence choices will have global impact on related industry players

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