Helped by a booming economy and rising incomes, China will soon become the world's biggest broadband market, according to analyst company Ovum.
China's broadband sector has been growing at a compound annual growth rate (CAGR) of 79 percent in the last three years. That growth will continue to boost the country's broadband market, which will reach 79 million subscribers next year, Ovum said in a research note Monday.
With a penetration rate of just 3.4 percent, China today still lags behind many countries in the Asia-Pacific region in terms of broadband adoption.
Hong Kong-based Ovum senior analyst Kevin Lee, said: "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 (voice over Internet Protocol) and IPTV. The Olympics [to be held in 2008] will provide another boost."
By 2010, China's broadband will grow by a CAGR of 75 percent to reach 139 million subscribers, Ovum projected.
China Telecom and China Netcom currently dominate the Chinese broadband access services market, with a combined market share of 87 percent. The remaining pie is shared amongst other market players including China Tietong, China Unicom, as well as smaller cable operators.
According to Ovum, Digital Subscriber Line (DSL) is the fastest growing broadband access technology in China with a market share of 71 percent. As of June this year, there are 32 million DSL subscribers in the country. The second fastest growing is Ethernet-based LAN (local area network) access typically deployed in high-density areas, which has a market share of 26 percent.
"DSL technology will be the key driving force for broadband growth", Lee said. "Operators are progressively upgrading the network using higher speed technology such as ADSL2+ and VDSL (very high bit-rate DSL) to meet increasing bandwidth demands."
Cable and wireless broadband service providers, however, will make a much smaller contribution to the overall broadband access market, Lee noted.
Despite widespread cable coverage and 128 million cable TV subscribers in China, cable operators have made few inroads into the growing broadband market. Ovum attributed this bump to regulatory barriers, a fragmented ownership structure and the lack of expertise--all of which have seriously undermined cable operators' competitiveness against DSL providers.
On wireless broadband, Lee said the technology is still immature. The emergence of VoIP, however, will give operators new hope for seeing returns on their wireless LANs.
Growing IPTV deployment is also expected to fuel broadband adoption in China. China Netcom and China Telecom have rolled out extensive IPTV trials last year by collaborating with IPTV licensees Shanghai Media Group and CCTV.
Despite the rosy outlook, Ovum said uncertainties remain in the Chinese broadband market.
"China needs to restructure the telecoms industry and it needs to reform the regulatory policy for broadband and IPTV," Lee said. "The possible entry of foreign players in line with WTO (World Trade Organization) commitments could also complicate the development of the competitive situation."