OREANDA-NEWS.  Fitch Ratings says licensing China Broadcasting Network (CBN) as the fourth Chinese telecoms operator is unlikely to speed up broadcasting-telecoms network convergence in China. Cable TV operators like CBN have been providing broadband services, but lack capital and scale to compete with their telecoms counterparts.

The licensing of CBN, which was established in 2014 by the Chinese broadcasting regulator to consolidate China's fragmented cable TV industry, is unlikely to have a significant impact on the three telecoms incumbents. China Mobile Limited (CML, A+/Stable) will continue to dominate the mobile market. China Telecom Corporation Limited (CTCL, A+/Stable) and China Unicom (Hong Kong) Limited (CUHKL) will continue to maintain their leadership in the broadband markets in southern and northern China, respectively. The Ministry of Industry and Information Technology issued a basic telecoms service licence to CBN on 5 May 2016.

CBN is likely to remain much smaller than the telecoms operators, restricting its ability to compete with them. In 2015, we estimate that cable TV industry revenue was around CNY90bn, compared with CTCL's and CUHKL's EBITDA of CNY94bn and CNY88bn, respectively. CML had much higher EBITDA of CNY240bn.

Granting CBN a telecoms licence advances the State Council's "Three-Network Convergence Promotion Plan" issued in September 2015. The plan aims to accelerate the full convergence of telecoms, broadcasting, and internet networks. China has been running a pilot programme in 54 major cities since 2010 that allowed telecoms operators and broadcasters to venture into the other's territory. However, progress has been slow due to a lack of capital in the cable TV industry and its fragmented industry structure.

Fitch believes CBN's licensing alone is unlikely to change the competitive landscape of the telecoms industry meaningfully. Cable TV operators have over 230 million cable TV subscribers and already provide broadband services, but they have failed to grab a significant share of the broadband market. At end-June 2015, there were 15 million cable broadband subscribers, compared with the 180 million broadband subscribers that CTCL and CUHKL have in total.

It will take considerable capital and time to narrow the network quality gap between telecoms and cable TV operators. Telecoms operators have strong operating cash flow to fund network upgrades. CTCL and CUHKL together spent CNY71bn on broadband capex in 2015, equivalent to 70%-80% of the entire cable TV industry's revenue. CTCL and CUHKL offer 100Mbps fibre-to-the-home service as their main broadband product. However, only 51% of China's cable TV network at end-June 2015 supported two-way data transmissions to provide internet access and other interactive TV services. Cable broadband internet service penetration was even lower, at 6%.

CBN is not entering the mobile market yet as its telecoms licence only includes telecoms infrastructure and domestic internet data transmission services. CBN holds the valuable 700MHz frequency spectrum, which can be redeployed for 4G use. However, even the rollout of a basic 4G network would take time that would leave CBN far behind its competitors. In addition, there will be challenges in obtaining sufficient capital to fund the network construction and handset subsidies.

Telecoms operators may lose some market share to cable TV operators. However, this should be offset by growing internet protocol television (IPTV) revenue. As Beijing's plan is to promote entry of broadcasting and telecoms operators into each other's business, it may only be a matter of time that telecoms operators get IPTV licences. Even without their own IPTV licences, the three telecoms operators plan to boost their IPTV subscribers to 100 million in 2016 (2015: 45.9 million), relying on their broadcasting partners.