Saturday, March 26, 2011

IPTV and development of Triple Play

On Friday, a UT short seller posted the article stating "Wei Leping, the direct of China Telecom Science and Technology Commission, attended the 2011 China Triple Play Summit and said that the triple play is facing mortality risk, and in the past year, triple play has achieved no real progress and the pilot progress has obviously lagged behind the deployment of the State Council."

How does this impact UTStarcom? UTStarcom has primarily invested in its IPTV system over the years and is targetting to use its iptv system as the base to create other networking/broadcasting distribution platforms in support of triple play/network convergence. So, the article has to be addressed.

First, lets be clear that IPTVs business over the last 5 years has not relied on network convergence because there simply was no network convergence to begin with until the recent 5 year plan started by the Chinese government last June 2010. So, UTs IPTV business/system has primarily been sold to telecom operators as a standalone. This fact is highlighted by the recent interview with Bestv CEO..

"Could you explain the government's plans for convergence of the country's telecoms and broadcasting networks?

The SARFT agency of the central government is responsible for overseeing the broadcasting networks in China. The State Council has recently issued a three-networks convergence policy, which explicitly allows for and promotes the adoption of IPTV in China.

What impact will these have on BesTV?

The impact is quite positive. BesTV will continue to follow these new regulations from the State Council and SARFT in developing our IPTV business, and we will continue to expand in our markets in China."

One side note is that BesTV has been doing very well with their iptv business and mentions iptv at its infancy.

"We strongly believe that we are still at the beginning of the growth stage for the IPTV market in China. Having surpassed 4mn IPTV subscribers recently, we are only at less than 5% penetration of the current 110+ million Chinese households with broadband internet service. We think that over the next few years, we would be able to quickly add many million more IPTV subscribers."

In fact, business is so good that SMG chief Li Ruigang is building his media empire via the iptv platform and building up BesTV

BesTV is profitable and they have been rolling (increased momentum) with the acquisition of Rupert Murdoch's Chinese assets last Aug. 2010 and SMG recently picking up the 3G mobile phone TV license.

Back to the article regarding triple play states

"In the past year, triple play has achieved no substantial progress, and we have not held a conference of triple play for a year and half, I feel triple play will face the mortality risk." Wei Leping said"

Now, I don't know what conference of triple play has not been held for a year and a half but the pilot for network convergence was just started in June 2010 and all indications are that there IS "substantial progress"

At the same time, the State Administration of Radio, attaches great importance to triple play, triple play by the State Council on promoting the overall programs and pilot programs, and actively promote and seriously implemented. According to Zhang Haitao introduced triple play key SARFT made for the following work:

"First, pay close attention to building a unified national planning, unified standards, unified organization, unified management of IPTV and mobile TV platform for the integration of broadcast control and monitoring platform; the second is to accelerate the cable TV network's integration and digital two-way, and the transformation of the next generation of wide power grid construction; third is to actively build the Chinese Radio and Television Network Company. "

Lets look at these 3 items with relation to UTStarcom. The triple play buildout would help its exsiting IPTV business with the unifcation of IPTV and mobile IPTV (and in fact Jack Lu mentioned the potential for devloping IPTV handsets). The 2nd point is a focus area for UT as well as they are targetting the cable TV industry and its 2000 operators. And the third is building platforms to link Radio and TV.

UT has participated in the trials but in essense the triple play part of it just described is still not a tangible part of the company, which includes IPTV, PTN, EPON, etc.

With respect to the progress of triple play....again, that article points to substantial progress

Zhang Haitao, said, "now the smooth progress of the work, especially in 12 pilot cities and regions have basically completed the integrated IPTV platform for the construction of broadcast control, and the total platform with the central docking. Also in the domestic Internet audio-visual program services sector, SARFT has been vetted and approved 594. To carry out the triple play of the experimental work laid a good foundation. "

so does that mean when that conference that Wei Leping is referring to happens, then there would be a spike in triple play progress?

Going back to the third aspect of triple is an article that came out late Friday as well...

A Clear Direction of National Radio And Television Networks Company

"In early 2010, China decided to speed up triple play of telecommunications network, broadcast network and Internet, and considered the overall program to promote the triple play.

With the program, China will set up a national cable network company in 2012. It is learned that the company will be listed this year, and the registered capital may be over 100 billion yuan.

In this regard, Shen Xiangjun said that the demands from state and central is to completed the integration of networks within two years and achieve one network in one province."


Does any of this guarantee the success of IPTV and/or triple play? And if it does, does this benefit UT, a perenial underperformer that can't hits it target even if its in front of it?

UT CEO Jack LU gave a recent interview stating....

Lu Ying: So I think the construction of triple play this year, including related to us a business opportunity should be much larger than last year, despite a quarter of the year just past, we clearly see that the various needs of the rapidly increased.

Daily: You are very optimistic about this year's market?

Lu Ying: Yes.

UTStarcom has moved back to China, solidified cash position, added on 4 Chinese board members with substantial industry/China background, and picked up investment from the Beijing government. It has increased bookings from $36m to $52m from Q3 to Q4 of 2010.

Now, does any of this guarantee success and a higher stock price? NO, the company has to compete against huge competitors and prove themselves quarter to quarter. The market doesn't believe it either as it is valued at around cash and there really is no huge institutional interest but if you are long shreholder, isn't the picture getting better?

The short sellers and bashers are betting on past history and UT not getting any business. UT has also partnered with China Merchant Bank on Strategic Cooperation Agreement on Triple Network Convergence

One last thoughts from the short seller:

"Tim, you are really screwed. I warned you!"
"When those Chinese investors such as Tiger and Tech all got out of this stock, it means something."
"posting something from the third party, please."

The above is basically what I have come up with and why I'm staying with the stock at these ridiculous valuations :-)....not sure what the "Chinese" investors think but I welcome the discussion and more importantly wait to see the progress quarter to quarter.

Have a good weekend.

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