Sunday, March 2, 2008

UT IPTV Worldwide and China Subscribers

On July 6, 2005, Softbank launched their iptv service powered by UTs M-vision (what it was called back then).

http://www.prnewswire.com/cgi-bin/micro_stories.pl?ACCT=159138&TICK=UTSI2&STORY=/www/story/07-06-2005/0004062192&EDATE=Jul+6,+2005

On November 2005, China Telecom officially launched their iptv service in Shanghai using UTs solution with a modest 5k target that drew a lot of headlines since Shanghai had 13 million people.

http://www.lightreading.com/document.asp?doc_id=84314&WT.svl=deptfin_1

Back then in late 2005, the stock was already "struggling" but managed to surged to the $8-9 range briefly on the news that this was THE turnaround. Obviously, it wasn't. As before, the market is still waiting for the growth in IPTV. During the strategic study by ML in late 2006/early 2007, they highlighted iptv as UTs potential savior but didn't have a good handle on when IPTV would take off and what their situation all over the world.

At this time, UT has shown that it has maintained market share and steadily growing the business in China and worldwide with wins in Japan, China, Inida, Brazil, Taiwan, and Sri Lanka. Strategic wins in the broadband/Pas areas in Italy, Philippines, Pakistan, Argentina, Chile, (Mexico, Russia, Turkey not publicized but...) show that UT has its foot in the door in a lot of places as well. Recently, UT has been providing subscriber numbers worldwide and in China and I have collected and will maintain those numbers as it is critical to one side of the profitability equation. The numbers are directly from UTStarcom, either though a PR or a source mentioned in a particular article.

http://tim94305.googlepages.com/UTIPTVSubscriberNumbers.pdf

In China, from the November 2005 start, subscribers grew to about 200k by end of 2006 and to 385k by November and 500k by end of January 2008. By end of 2008, it should be around 1 million just on the number of STB shipping currently. I was going to post potential iptv subscriber growth in China and worldwide but that is a futile exercise as the numbers are all over the place and have been off by a lot in recent years due to uncertain regulatory environment, which still exists today. Most of those predictions in iptv subscribers come from the number of broadband users and penetration rates that iptv can achieve. Since those reports are not worth the paper they are printed (I wonder if those companies charging for them give refunds when they are so off), I will just go with some broadband data I plucked out from the web this morning.

"China ranks second in number of broadband users worldwide People's Daily,June 7, 2007 - Zhao Houlin, Vice Secretary General of the International Telecommunication Union (ITU), said on June 5th that China now has 97 million broadband users. This number of broadband users ranks the second only to the US. The development of the broadband communication industry has gained worldwide attention. At the opening ceremony of Broadband World Forum Asia 2007 held by the China Network Communications Group Corporation, Zhao Houlin said that by the end of 2005, 74 percent of global broadband users were from developed countries, and China made up 17.5 percent. China's rate of broadband popularization is the fastest among developing countries. Zhao Houlin said the ITU expects that "China's successful experience can be used as reference and be applied in other countries, thereby helping to narrow the gap between broadband users the world." At present, China's broadband users has exceeded 50 million; of which China Telecom's broadband access users has exceeded 30 million, and China Netcom's broadband access users has exceeded 20 million."

http://www.chinatoday.com/it/it.htm

The numbers are all over the place but broadband users (and the quality of the broadband connections) are going much higher than whatever iptv uptake currently is in China and worldwide in UT markets. Prior to 2007, we only had contract wins but its good the company is providing numbers whenever they release an iptv related PR (as we had wanted them to :-).

I don't want to be overly excited since the penetration rates are still way low and the company is still struggling. I also want to highlight the fact that in the Softbank PR, you could already see the company deploying Rolling stream, Gepon, IPDSLAM and other technologies, which tells you that the company has been spending a ton of money in R&D for a long time to get to where they are (either maintaining those technologies or developing new ones) and they are still not profitable. That is something we need management to discuss with shareholders and the market in general. We are a long way from where we want to get but tangible contracts/subscribers in iptv are validating the potential (not necessarily the return of investment).

UTStarcom competitor ZTE and Philippine National Broadband Network (NBN) and Cyber Education Projects (CEP).

How difficult is it to compete with ZTE in the international markets?

A quick background of the "size" of ZTE,

"First, as a global enterprise and China's only publicly listed telecommunication supplier both in Hong Kong and Shen Zhen, ZTE has made great achievements in business growth during the year 2007. The turnover of the first 3 quarters has increased 47%, and the annual profits are expected to increase by 50-70% in fiscal year 2007. ZTE has set its goal of $10 billion US dollars for global sales in 2008."

http://www.abs-cbnnews.com/storypage.aspx?StoryId=109164

Currently, there is a major bribery scandal in the Philippines involving ZTE and Philippine governement officials (all the way to the President's husband).

"The Philippine government in April 2007 awarded CTE a US$300 million-contract to build a broadband network to connect all government agencies and offices across the country. The project was later scrapped after allegations emerged that the deal had benefited high-ranking officials through commissions and kickbacks."

http://www.businessweek.com/globalbiz/content/feb2008/gb20080220_073482.htm?campaign_id=rss_daily

The Chinese government was going to loan the entire amount of the contract with loan payments not starting until 2012.

http://www.gmanews.tv/story/61876/Arroyo-Bribery-talk-over-ZTE-deal-was-uncorroborated

There are now hearings into this matter and officials from ZTE and the Chinese government are being called to testify. Obviously, they are refusing and instead using the massive trade between the two countries as leverage and instead trying to turn it around and saying this will discourage trade between foreign countries and the Philippines.

That is a tough situation for UTStarcom to compete against. The shear size of ZTE ($10b in revs and the backing/credit of the Chinese government) make it almost unsurmountable. However, they have managed to win at PLDT and is even using this as a showcase to win more projects in the region (and even in Italy with Tiscali very recently). Hopefully, these cases of corruption against ZTE will help UT in securing more wins as governments avoid the potential controversy in dealing with Chinese backed companies.

With the current very succesful PLDT win at hand, UT should go after the National Broadband Network (NBN) and Cyber Education Projects (CEP) in the Philippines that ZTE did not get and involved in the scandal. This is another discussion point we can bring up during the meeting with management.