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Huge Growth of Broadband in China Continues

According to Ovum, China will overtake the U.S. to become the world's biggest broadband market, in less than a year. China's broadband sector has been growing dramatically at a compound annual growth rate (CAGR) of 79 percent, over the last three years. The strong growth will continue to boost the broadband market, which will reach 79 million subscribers by 2007.

But the growth opportunity is still huge. With a penetration rate of only 3.4 percent of the population, broadband penetration in China is well behind many countries in the Asia-Pacific region.

"We believe China's broadband development will continue to benefit from a booming economy, growing incomes, expanding PC penetration and new applications such as VoIP and IPTV. The Olympics will provide another boost", says Ovum Senior Analyst, Kevin Lee, based in Hong Kong.

Ovum forecasts for China's broadband will grow by a CAGR of 75 percent to reach 139 million subscribers by 2010. China Telecom and China Netcom are the dominant providers of broadband access services in China, with a combined broadband market share of 87 percent of subscribers. The remainder is accounted for by China Tietong, China Unicom, cable and miscellaneous other operators.

DSL is the fastest growing access technology. It dominates with a steadily growing market share of 71 percent and 32 millions subscribers by June 2006. It is followed by Ethernet-based LAN access in high-density areas, which has a substantial market share of 26 percent.

DSL speed and prices vary widely geographically and between the two major DSL providers. Broadband prices (where China Telecom offers higher rates) are normally highest in major cities but more affordable in second and third tier cities.

Despite widespread cable coverage and 128 million cable TV service subscribers in China, cable operators have made few inroads into the growing broadband market. Ovum believes that regulatory barriers, fragmented ownership structure and a lack of expertise have seriously undermined cable operators' competitiveness against DSL providers. This is in stark contrast to the North American market (China already has more DSL subscribers than the U.S., according to Point Topic).

As for wireless broadband, Lee explains that it is still at an immature stage but the emergence of VoIP is giving operators new hope for seeing returns on their wireless local area networks. Growing IPTV deployment is expected to encourage broadband uptake in China.

The two DSL operators rolled out extensive IPTV trials over 2005 in collaboration with the IPTV licencees Shanghai Media Group and CCTV. Following Harbin, Shanghai will be the second city to begin commercial service by the end of September 2006. Ovum forecasts that prospects for further broadband development in China are bright, but significant uncertainties remain.

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