Comments on the investment of the three networks ' integration of the stakeholders

Wang Jinxian, Asia head of UBS Telecom Research, January 14 this year, the State Council issued a notice, decided to speed up the promotion of domestic telecommunications network, radio and television network and the Internet integration of three networks. Throughout the domestic and three network integration related to the various industries, the policy has been devoting great attention.　　Today, we are a special Swiss bank analyst from the investment point of view of the relevant parties to the policy impact of the comments. ★ The promotion of triple-net integration will be far slower than market expectations; ★ Triple-Net integration is more of a challenge than an opportunity for cable operators. ★ Short-term three-net convergence on fixed-network operators are neutral, slightly positive for China Mobile, but if the cable operators can become a powerhouse in the broadband market, The impact of the policy on telecom operators may turn negative; ★ With the increase of capital expenditure on network construction by telecom operators and cable carriers, equipment manufacturers may become the biggest beneficiaries; ★ In the long run, triple-net convergence will be good for Internet service providers, because with the network bandwidth upgrade, they will have the opportunity to expand new revenue sources,　　such as network video and online games business.　　The impact of the three-net integration on the various stakeholders of the industrial chain is as follows. Cable operators slightly positive we believe that the new three-net integration policy good cable operators, there are three reasons: one is that the two-way opening-up policy will allow them access to telecommunications services, but restricts telecoms companies to the core business areas of cable operators; The second is that the three-net convergence timetable will provide a transition period for cable operators,　　Prepare for direct competition third, triple-net convergence will also speed up the integration of wired networks, possibly creating a nationwide cable company capable of competing with telecoms companies. But even if the new policy meets all expectations, we think it is still difficult for cable operators to compete effectively with telecoms companies for policy. Triple-Net convergence there are many uncertainties, may affect enough to compete with the telecommunications industry "national cable operators" the establishment. Our view is based on the following considerations: The pay-TV business model is not widely accepted by consumers in China, so it is difficult to improve the ARPU of the service; Cable operators are inferior to telecoms companies in terms of infrastructure, customer service, corporate governance and operating experience;　　We don't think there will be a "national cable operator" that can compete with telecom companies for 3 years. For the cable industry, the main stimulus is as follows: The full integration of provincial operators we believe the cable industry's first stimulus is the full integration of cable operators at the provincial level, which is expected to be completed by 2011, later than the 2010-year deadline set by SARFT.　　The success of Guangdong will be key because it is the most economically developed region in China, where consolidation may be more complex than any other province. --the establishment of a nationwide cable company has yet to answer questions about the organization and structure of the national cable Company (whether it is based on the current structure of China cable television network, or the merger of major provincial cable operators), since provincial companies are legal entities, equity and organizational structure may be the main concern at this stage. --NGB Network and service integration we believe that NGB has two functions in the cable industry: first, it is a controllable and manageable entity network, which will be connected to the provincial network; second, it is a technical/service standard, based on which the cable operator will be able to provide integration services across the country.　　We believe that the first function will help to consolidate, and the second function is more important for industry development. --Export bandwidth and interconnect costs international export bandwidth and interconnection costs are important for the development of wired broadband services, which we believe will be a major bottleneck for cable operators to provide Internet access.　　The two thresholds are not easy to cross unless the government wants cable operators to become major rivals for telecoms companies. Neutrality of telecom Enterprises we believe that the new three-net integration policy will have a basic neutral impact on telecom enterprises. While cable operators are unlikely to be strong rivals for ftns operators, they do dominate the video/television sector.　　China Mobile will benefit from the policy if it can reach a partnership with cable operators. Even after the triple-net integration, the dominance of fixed-network operators in the broadband access market and the dominance of cable operators in the television/video broadcasting market will continue. While FTNS companies have better infrastructure and customer service, they have difficulty in challenging cable operators in the television/video arena, which will continue to control broadcast/control platforms based on content. Telecoms companies are now unable to launch IPTV services on a large scale because of the lack of a corresponding profit model: Telecoms companies do not have the experience of producing content; telecoms companies do not sell ads, which makes their monthly income limited to about 20 yuan a month. And because they don't have permission to sell ads, telecoms companies will be able to share tariffs with program companies.　　Therefore, we believe that the telecommunications companies do not have the power to provide IPTV services. However, China Mobile may benefit from triple-net integration, and the company may be able to forge a partnership with cable operators to expand its access network. China Mobile has a world-class backbone network, 96% of the base station with fiber optic connection. The cable operator has a national access network of 174 million users and a weaker transmission network, while the backbone network is almost none. Therefore, the cooperative relationship between China Mobile and cable operators will provide synergy and benefit both business growth. Some local companies in China have already reached partnerships with local cable companies to provide broadband access, such as in Jiangsu, Fujian and Zhejiang. But we believe that regulatory restrictions are an important element of uncertainty in such partnerships, as China Mobile is barred from providing fixed-network services, including broadband access, even if it is working with third parties.　　According to Sina News report, Jiangsu Province Communications Authority has shut down such broadband access services in March. March 23, 2010, China Mobile and Bcc Communications Group Co., Ltd. (established by the State Administration of Radio and Radio) jointly announced the launch of commercial CMMB in 303 cities.CMMB is a mobile one-way broadcast service, through customized mobile phone access. Currently available to TD users, play 6 TV channels. We believe that CMMB will be a competitive advantage of China Mobile, but not the decisive factor.　　The market is still concerned about high tariffs because it offers only 6 channels, but it has to enter into a three-year contract of $300 a month (at the current discount price of 138 yuan). A great opportunity for equipment manufacturers we believe that equipment manufacturers may be the biggest beneficiaries of triple-net convergence, and that telecoms companies and cable operators will increase capital spending on backbone and broadband network infrastructure over the next 3 years.　　Therefore, the most beneficial industries will be the equipment manufacturers industry, including optical devices, optical/optical cables and IT support systems. Optical equipment Manufacturers and optical fiber/cable manufacturers may be the biggest beneficiaries of triple-net integration.　　Under the new triple-Net convergence policy, telecom companies and cable operators will choose to build higher-speed broadband networks to provide higher quality and more interactive content, thus achieving competitive differentiation and charging a premium. Cable operators are likely to speed up their initial two-way network upgrades and invest heavily in building a nationwide fibre-optic backbone to connect the previously divided cable networks. It is expected that once the national cable operators start the National backbone network construction, the cable operator's capital expenditure will increase significantly. Even if plans to form a national cable operator are abandoned, the government has also proposed 100% digitization by 2015.　　Therefore, a rough estimate shows that the total cost of network upgrades will be 142 billion yuan, most of which will occur in 2010 ~2012 years. Telecoms companies must also invest heavily in replacing existing ADSL broadband networks with fiber-optic technology to provide more high-speed broadband services. According to the government's Industrial development guidelines (April 8 by the Ministry of Industry and other ministries issued jointly), telecom companies should be the average user bandwidth from the current 2M to 8M, and the total number of users of fiber to the user from the current 30 million to 80 million of 2011.　　According to the government's guidance, the total investment in this area will reach 150 billion yuan in the next three years. We believe ZTE has an advantage in the domestic broadband and optical fiber market with 40% market share. Other optical equipment manufacturers may also benefit from triple-net integration.　　Domestic fiber/cable manufacturers and optical components suppliers in the next three years of product demand will be very strong. We reiterate the "buy" rating of ZTE's H-share, with a target price of HK $58.00.　　We derive the target price based on the discounted cash flow valuation method, and use the UBS Vcam tool to predict the factors that affect the long-term valuation, and set the weighted average capital cost at 10.5%. Due to the generally weak IT support systems of domestic cable operators, we estimate that these systems will be difficult to meet the more advanced requirements of a national enterprise to provide more complex services after the integration of the three networks.　　We anticipate that it support system may be integrated and upgraded, will be beneficial to ZTE and other leading enterprises. Internet short-term cautious, long-term positive we believe that interconnectionThe network industry will benefit from the broadband upgrade, the three-network integration will give Internet service providers sufficient space to seek online video and online gaming opportunities.　　With regulatory strengthening, we are cautious about the short-term negative impact on content providers. (People's Posts and telecommunications)