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China Telecom, Netcom Define 2008 Strategy

Netease Tech, 12/26/07

China Telecom (NYSE: CHA; 0728.HK) and China Netcom (NYSE: CN; 0906.HK) have both recently held meetings to define strategy for 2008. China Telecom GM Wang Xiaochu said that Internet and VAS development is to be accelerated, with emphasis on Internet media. China Netcom's GM Zhang Chunjiang and Deputy GM Zuo Xunsheng stressed services for the Olympics and the move to become a 'broadband communications and multimedia services provider.'

LENS: With subscriber growth in basic services near zero for the year and negative in each of the past 4 months, finding new revenue streams has become an urgent matter for China's fixed-line operators. Broadband access, IPTV, and value-added services have been key areas of focus over the last year, although IPTV has been developing more slowly than hoped, and therefore has not been a major revenue contributor.

One area to which China Telecom and Netcom are both pinning their hopes is the provision and management of - rather than just the operation of a channel for - Internet content. China Telecom's Hubei subsidiary made a move in this direction earlier this week, launching a video-based recruitment website. The site provides a platform where employers can publish recruitment policies, vacancies and training information and job-hunters can create voice or video resumes and attend online interviews. Netcom has also been vocal about its plans in this area. Lat week Netcom's deputy chief engineer Zuo Feng indicated that operators must control and manage Internet content to avoid being marginalized, with video content offering particularly strong growth potential. With bandwidth and storage costs a key driver of competitiveness in the online video industry, China Telecom and Netcom have a critical advantage over other players in this space.

Another growth spot both operators are developing is value-added directory services. To drive aggressive growth of its 114 directory service, China Telecom established a new company, Best Tone, this August to operate the business (see China Telecom to Establish Company to Operate 114 Directory," MW 8/10/07 issue). Netcom has also been actively promoting its directory service, running major cross-platform advertising campaigns, including TV commercials, subway posters, and other media.

A third area both companies are now promoting more actively is advertising (including the advertising component of their directory services). China Telecom earlier this month announced plans to offer video and poster adverts at its public telephone booths, while Netcom's Shandong subsidiary this week started promoting advertising services that include not only ad space at its public phone booths, but also via videos shown online and at retail outlets, and ad space on phone cards and monthly bills. Shandong Netcom explained that the launch was in line with parent company China Netcom Group's overall plans for H2 2007.

Keywords: China Telecom CHA 0728.HK China Netcom CN 0906.HK 2008 strategy Wang Xiaochu Internet VAS digital media online media Zhang Chunjiang Zuo Xunsheng Olympics broadband telecom

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