China's Disturbing Broadband Decline

A digital divide between saturated urban areas and underserved rural markets is behind the slowdown

In a recent report, Ovum noted that after a staggering 114 percent growth in 2004, China's broadband growth slowed in 2005 and 2006 to 57 percent and 38 percent, respectively.

"Ovum expects double-digit growth to continue for the next two years, but at lower rates than we have seen before," Kevin Lee, an Ovum analyst based in Hong Kong, said in a statement.

"The slowdown will entrench a digital dividebecause broadband is approaching maturity in the big cities, while the rural markets remain almost untapped," Lee added.

Although Ovum still expects China to surpass the United States in terms of broadband subscriber base by 2008, the analyst house said this leaves a large proportion of the Chinese market untapped.

"Household broadband penetration in China stood at 13 percent by December 2006," Lee said. "We forecast that the steady broadband growth will push household penetration to 21 percent by 2010, equivalent to 106 million subscribers. This is nowhere near market potential."

Unless growth can be maintained, these operators will see their total revenues shrink, he warned.

"The lack of competition between the main operators is a major factor because it keeps prices higher than necessary," he explained, noting that high prices hinder uptake.

Despite the booming Chinese economy, increased Internet and PC population, and emerging applications such as peer-to-peer and operators' push for IPTV will continue to boost demand for broadband.

Ovum also advised carriers to expand their networks in the second- and third-tier cities to maintain growth in broadband adoption, and said they would also do well to ramp up product development activity around content services, and in the longer term, triple-play.

The popularity of peer-to-peer content sharing presents untapped demand for content, and operators need to offer attractive new content services to their existing customer base in the cities in order to grow new revenue streams, said Ovum.

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