BuddeBlog

SYNOPSIS
After my trip to China I travelled on to the USA, where I visited New York, Washington and Boston. I was involved in some interesting debates regarding developments in relation to Alcatel/Lucent, Sprint, Time Warner and Google. As well as that I had plenty of opportunities to look at some of the more strategic developments that are going on in the USA …. so plenty to talk about.
HALLOWEEN IN NEW YORK
Doing business in the USA remains one of the most exciting things one can be involved in. One never comes back empty-handed from such trips – the new ideas, marketing activities and sheer commercial energy that flow out of this country are incredible. I always need to make notes so as not to forget anything.

Interestingly, despite the feelings of fear and suspicion that are increasingly being spread via TV, newspapers and the like, I found New York to be a much friendlier city that it used to be – it’s almost as if 9/11 has opened up a soft spot in this normally tough city.

On arrival at JFK the courtesy and friendliness of the custom staff was greatly improved; police cars drive around with signs indicating their commitment to courtesy; and taxis exhibit pledges about the rights of passengers, signed by the mayor.

Looking back over a period of 25 years of travelling to the USA, I find all of this a great improvement.

As it happened I arrived on Halloween and had my first ever Halloween experience in the USA.

My favourite hotel is the funky Paramount Hotel, just off Times Square. On this occasion it was full of spider webs, carved out pumpkins, with the staff dressed in vampire and skeleton outfits – a great Halloween reception. On the street, the same scene – with many costumed New Yorkers, all having great fun. I joined the thousands of onlookers at the parade that night.

Jogging through Central Part is another great way to get a glimpse of what is behind the normally reserved behaviour of these city slickers. The people with dogs (these make up roughly half of the morning walkers) are especially interesting to watch.

To the surprise of many the US economy continues to boom, despite the financial problems and the billions spent in Iraq. For the first time in my life I found New York relatively cheap, in some ways even cheaper than Beijing.
NEW YORK VS BEIJING
Having flown in from China I couldn’t help comparing the two cities.

As a people, New Yorkers are certainly my favourite. I often find Chinese city dwellers fairly indifferent, and sometimes rather rude.

I am not claiming that this is related to cultural difference. I think it has more to do with China’s history – in particular over the last 50 years, especially the ‘cultural revolution’.

However, I distinctly remember that on my first trip to New York in the 1980s it was pretty scary to walk in Times Square in the evening, and taxi drivers and others were also very rude. There certainly was, at that time, an ‘uncaring’ atmosphere in that city also.

I am sure that with the current exposure of China to the rest of the world, and as the period of the Cultural Revolution fades away, the people of Beijing will also change. I believe no other generation of people has experienced such rapid and profound change as the Chinese have, and this, of course, does take its toll.

Coming from Beijing, New York now seems old and a little tired. In 1980 I thought New York looked modern and the European cities looked aged. This time I had the same feeling about modern Beijing compared with an ageing New York.

Of course, it’s all about perspective.

In Beijing the infrastructure (cities, airports, airplanes, railroads, highways, telecoms, and so on) is mostly new and built with a 25- to 50-year vision. There is, for example, plenty of space around their skyscrapers. Such planning never happened in New York, and also a great deal of the housing and infrastructure maintenance there has been very minimal over the last 30 years, which makes the city look rather shabby in comparison with the newer Chinese cities.

As I mentioned in my China Travelogue (Travelogue China – November 2007), China’s long-term vision and infrastructure planning could easily set them apart from the short-term approach of the western economies.

However, a major negative in Beijing is its awful pollution. It is constant and all-pervasive. I have never ever experienced anything like that in New York.

In my China Travelogue I complained about the airplane delays in Beijing. I think JFK in New York beats them all – the delays there are so bad that they are now considering limiting the number of flights.

AMERICAN DENIAL
Of course, in my meetings in the USA I mentioned my recent trip to China and the impressions I brought with me. The people I spoke to were interested in my reports of the progress in China, but some of them also mentioned that this is an uncomfortable topic in the USA.

Many Americans find it very hard to believe that their country may not be the best in the world. They believe that it would be impossible for another country to outperform the USA. They also believe that it would be impossible for any other country, in particular China, to seriously compete with the USA.

It will be interesting to see whether, as some people over there predicted, America can pull off another economic miracle and remain the global leader. I am not saying that this is impossible, but I believe the chances are slim. The country would certainly need to look very seriously at its ageing infrastructure.

WASHINGTON IN FALL
Travelling from the hustle and bustle of New York to a comparatively sedate Washington was like taking a breath of fresh air. I spent a glorious weekend there with my friend and colleague, Gary Arlen. He has lived in Washington for 30 years and is a proud citizen of that great city.

Its monuments are reminders of how this impressive country was formed, and some of the words of its founding fathers are at odds with what is currently happening there. Franklin Roosevelt spoke about precious nature, and how we need to protect it. And, of course, he was also responsible for the famous saying: ….the only thing we have to fear is fear itself.

Given the current state of affairs in the world, Abraham Lincoln’s Gettysburg Address is also worth reading again.

It was sad to see many places completely blocked off from the public and the enormous presence of police, as well as what I thought to be the over-the-top security measures at the airport. In that respect the terrorist has certainly won. And, although largely suppressed, the many injured and maimed people now returning from Iraq are also beginning to have an impact on the America psyche.

We survived the many attacks of the Palestinian terrorists, the Baider Mainhoff Group, the Roten Armee and the Italian neo fascist group Nuclei Armati Rivoluzionari, between 1968 and 1980 without the draconian laws that are now spreading doom, gloom and fear. I miss the American spirit that was embodied in the many heroic Washington monuments – I believe those American heroes deserve better from us.

Passing by all those national and international institutions I also realised the influence that events in Washington have on all of us around the world.

THE BOSTON PATRIOTS
It was fortunate that on the night I arrived in Boston the local NFL team won their very important mid-season game against the Indianapolis Colts. Before the game both teams were unbeaten. The win made everyone in Boston very happy and created the right environment for my business meetings there 

And the glorious weather presented Massachusetts in the most spectacular autumn colours, a real feast for the eyes.

However when I left a few days later Canadian snow had started to reach the city, so it was a good time to move on!
TELECOMMUNICATIONS NEWS AND UPDATES
TELECOMS NOT UNSCATHED
The fallout of 9/11 has also affected the telecoms industry and there is currently a debate raging about the pros and cons of the telcos siding with the government to the extent of allowing them to tap their phone lines.

Under the American Constitution telephone companies are not allowed to do this, and civil libertarian groups are preparing a court case against AT&T and Verizon.

On the other hand, an editorial in the New York Times indicated that these telcos deserve a medal for their cooperation with the government.

It will be interesting to see who (if anyone) will be blamed for this breach of the Constitution – the telcos or the government.
THE WEB BOOM
As mentioned above, the US economy is growing at a healthy pace. The same applies to the ICT industry. Silicon Valley is booming as well, but this has been setting off some alarm bells, as everybody still remembers the dot.com boom/bust, which was very much driven by Silicon Valley. However financial analysts all agree that it is unlikely that the current boom will end in another spectacular bust.

The current scale of the growth is far more sustainable and doesn’t necessitate the massive amount of venture capital that the dot.comers needed (and were cheerfully given). It is estimated that the current boom requires less than $30 billion of investments this year, while at the peak in 2000 dot.comers consumed $95 billion in one year.

The big money is changing hands between the new startups (Facebook, YouTube, MySpace, Skype, etc) and companies such as Google, Yahoo, News Corp, Microsoft, etc; making the present boom less vulnerable to the smaller punters. Nevertheless, if anything were to go wrong with one of these players – Google in particular – it would have enormous consequences for the whole industry and would totally destroy the positive sentiment that has been returning to the investment market.

However, under the radar of these headline-grabbing developments there are literally thousands of companies entering the Internet economy market with many local services in different countries – as well as players aiming for the numerous niche markets that are now opening up through better broadband infrastructure. This certainly makes the current developments far more sustainable in the long term.
COMPANY ANALYSES
While travelling through the USA I wrote several analyses around the various developments.
The problems Sprint is having with WiMAX. See Sprint’s flawed business plan for WiMAX.
The losses of Alcatel/Lucent. See Global - Analysis - The Industry Moving into 2008
The new Google mobile phone initiative. See Global - Digital Media - Internet Media Companies
Structural separation at Times Warner. See Will Time Warner lead the charge towards structural separation?
Mobile operators will face open competition. See Global - Mobile - Equipment - Mobile Handsets
 
See also:
USA – Mobile Market – Analysis, Statistics & Forecasts
USA – Mobile Market – Major Operators
USA – Broadband Market – Wireless Broadband
BROADBAND STILL LAGGING BEHIND
President Bush’s promise from 2004 to get broadband in every corner of the country by 2007 is not eventuating. With broadband penetration at 22%, the US has fallen to 15th place on the OECD scorecard, down from 12th place last year. It has fared no better in terms of broadband speeds, with its average maximum download speed of 8Mb/s falling well short of the nearly 100Mb/s achieved by Japan. Similarly, average US broadband pricing is nothing to boast about.

Embarrassed by the relatively slow development of broadband in the USA, federal subsidies have now been made available to State Governments to ensure that affordable broadband will be made available. The FCC has been ordered to map the country so that it becomes clear where the gaps are. The telcos and cable companies have been very reluctant to assist the FCC in this process and regulations are now in place to obtain the necessary data.

With the new subsidies, Kentucky has been the most successful so far with 95% of the state now connected to broadband. Over the last year penetration there has increased from 20% to 44%. The state works together with others under the national not-for-profit organisation ‘Connected Nation’, with West Virginia and Tennessee also active participants in the programme. So successful has been the Kentucky initiative that presidential-hopeful Senator Hillary Clinton has modelled her broadband policy, Connect America, on it.

Consumer organisations have also urged the FCC to use the $7 billion Universal Services Fund to improve broadband throughout the country; so far the regulator has been reluctant to use the fund for such purposes. During my discussions in the USA I heard from several people that they believed that the FCC has become increasingly politicised, with its Republican chairman being more interested in his political career rather than in ensuring nation-wide broadband of a good quality and an affordable price. The USA clearly has a long road ahead to improve its broadband record.

See also: USA – Broadband Market – Cable modem & DSL – Analysis, Statistics & Forecasts.
FCC REPRIMANDS CABLE OPERATORS
My greatest concern regarding telecoms reforms in the USA is that the market is dominated by a handful of monopolies and, while it is true that there is good competition between them, I don’t see this structure as a sustainable model for the future.

Also the USA will need to address the issue of open networks and the structural separation between infrastructure and services. In my Time Warner analysis (see Will Time Warner lead the charge towards structural separation?) I indicated that the cable companies will eventually retreat from the infrastructure market as it makes sense for them to start using the two telcos’ FttH networks for delivery of their content. This will give these two monopolists far too much power and will undermine the US Internet economy.

In order to be seen to be doing something in relation to competition the FCC ordered the cable companies to end their exclusivity deals with apartment buildings and condominiums. While this does give Verizon and AT&T some new opportunities it is, however, not expected to have an enormous impact in the broadband market.
MOBILE
GOOGLE THROWING A LIFELINE TO MOBILE CONTENT
One could never say that there is insufficient interest in mobile content. For the last ten years thousands (yes indeed, thousands!) of small and large companies have tried to crack this nut. However, in 99% of all cases it was the mobile operators’ vertically-integrated business model that prevented these companies from even reaching a trial stage.

However, with the new initiatives from Apple and Google (see Global - Digital Media - Internet Media Companies) we see a renewed interest in this market. CBS Mobile is looking at exploring new avenues to develop services for the small screen, and companies such as Disney and NBC are also looking again at the market.

It will be interesting to see if the mobile industry can deliver. One of my arguments has been that the mobile technologies are not well-suited for mass market mobile data applications. The upcoming wireless broadband spectrum auction will shed some light on that.

While I am convinced that Google doesn’t want to become a telco, it will do everything in its power to force open this market. Without open broadband networks the future for Google will be very bleak indeed. So, in the absence of any serious attempt from the telcos to move towards open networks, Google will put its money where its mouth is, bid in the 700Mhz spectrum auction and get a wireless broadband network in operation, if that is what is needed to open the market up.

At that stage we will also see whether the mobile operators can compete in the emerging personal wireless broadband market.

MOBILE INCENTIVE
There is currently a proposal before the Education Department in New York that could see high-performing students receiving free mobile calling minutes as a reward for their efforts. This certainly is a controversial issue, as the official policy is to ban mobile phones from schools. If the award system is adopted the mobile minutes can’t be taken up during school hours.

The New York education system has recently seen other controversial proposals, such as the handing out of cash bonuses to high-achieving students and their teachers.

This is a reflection of the need to put more and better educated students through the system. Again comparing this to China, year after year more than a million new graduates in engineering alone are delivered to the marketplace in that country. I am not saying that the New York initiatives are fuelled by this – education should be one of the top priorities in every country in the developed world.
DIGITAL MEDIA
WILL STRIKE FORCE USERS TO THE NET?
One of the hottest media topics in the country was the ongoing Mexican standoff between the Hollywood producers and the writers. This latter group wants a better deal on their rights regarding scripts used for the digital media. While the business models for these productions are unclear, the writers don’t want to fall into the same trap as they did a few decades ago. At that time they unwittingly signed long-term contracts for the use of their intellectual products for video, which included a ‘dud’ deal for the use of their materials on DVDs.

This clearly shows that digital media have reached a critical point in the USA.

The writers were indirectly supported when Google’s share price crashed through the $700 mark during that week, making it one of the highest valued companies on earth. All the signs indicate that these media will be the future and the writers, in my opinion, have a good case to argue.

The first shows that went off the air were the late night comedy programs, and this resulted in some interesting questions about whether these ‘comedians’ can do their own jokes without their scriptwriters.

If the strike continues for a long time it will also be interesting to see what this will do for broadcasting in general. Will this further establish the Internet as a serious alternative media outlet? The strike might trigger people to look for alternative entertainment on the Net.
WEB CAMPAIGNS
As I expected, convergence is well and truly accepted in the USA. I have mentioned the triple play offerings from the telcos and the cable companies, but interesting partnerships are working in this converging marketplace also.

As an example (there are too many to cover all of them) Turner Classic Movies is presenting the movie choice of 30 celebrities. Hearst magazines will ask its readers to program their own film festival, utilising these movies and the services of DVD distributor Netflix and Philips Electronics North America.

Users will be directed to six web sites, each of which will list ten movies. On these sites Netflix will provide trailers. They can be watched on embedded players which will demonstrate the look of Amblight Philips TV sets (these sets cast a glow on the wall around the screen enhancing the colour experience).

A range of interactive services and competitions are provided by Netflix and users can get a Philips set, free on a two-week trial.

The web campaign has a two million dollar promotion campaign attached to it.

CONTENT FINGERPRINTS
A new company called Attributor has developed software that can identify ‘fingerprinted’ material on the web. Publishers can put these fingerprints in their content and the software program allows them to check if significant parts of their content appear, legally or illegally, elsewhere on the Net.

The software program can also run continuously and alert the publisher to possible breaches of the copyright laws.

SLINGBOX
The Slingbox is also getting a lot of attention in the States. Forget about the PVR, the Slingbox (retailing at $180 around Times Square) allows you to transmit whatever is on your TV at home to a laptop or mobile/wireless device. This enables the user to move to another room and, for example, use the laptop to continue to watch the TV.

Travellers at hotels can still watch their TV programs, no matter where they are. There are no international barriers, so if I had had Slingbox while I was in the States I could have watched the Australian ABC news in my hotel in New York.

ONLINE PRIVACY
Chat rooms are now becoming so sophisticated that advertisements can be inserted instantaneously, based on a conversation that is taking place. If, for example, you are chatting with a person about a recent trip it might insert travel advertisements; if you discuss your health, it comes up with medical ads, and so on. The FCC has now indicated that it wants to investigate this practice of ‘customer tracking’ as it is becoming an intrusion into people’s private lives. The FCC wants to know how much control people need or want. It also wants to ensure a customer permission regime.

While these tracking services are currently still anonymous, Internet technology already exists to profile individuals, including private details, and it will only be a matter of time before serious commercial misuse is reported. Some of the leading Internet companies are already warning their customers and offering them opt-outs from these tracking services.
INNOVATIVE NEW VIDEO CONTENT
In many cities, railway systems and public venues such as hotels, convention centres and shopping centres in China (I saw this last year in Japan also) you see plasma screens linked to interactive telecoms networks. These closed circuit networks can provide essential information, security information, traffic and travel information and so on.

Of course, in between there is plenty of room for advertising and over the last few years the ads have already become far more entertaining. However, China has gone that one step futher. In the subway system in Shanghai (and soon also in Beijing) the webisodes or mobisodes (short sequences of soap opera content) are transmitted over these internal networks over periods of up to 40 weeks. It will be interesting to see the
Chinese people’s reaction to this. The ‘suboperas’ as they are called in Shanghai are sponsored by Starbucks and Pepsi.

I picked up the above information in China, but when I was in New York I came across another interesting new content development.

An indie (as in non-mainstream) filmmaker is producing web-based sitcoms. These are quite different from the webisodes mentioned above. To date three multi-act episodes of around 30 minutes each have been developed and so far these shows have been watched one million times on YouTube and Blip.TV (search for Groommates). Production cost per episode is around $400!

A very interesting development here is that content and service providers are building up a customer base around their particular website, theme, interest, etc and, as such, they create a ‘fan club’. With that in place interesting business models can be developed, either through e-payments, subscriptions and/or advertising.

WHAT’S ON THE WEB TONIGHT?
Increasingly the TV stations are putting their stamp on the new digital media. They have seen companies such as YouTube, Joost and others encroaching on their territory but now they are striking back with their own web services.

Hundreds of TV programs are now available from their websites:
• ABC.com
• CBS.com
• CWTC.com
• NBC.com
• Fox.com

Already we are seeing some interesting developments in this area, as they are beginning to offer these services through their TV set-top boxes, and that does not require the use of a PC. The current web-based developments are all PC-based and, as a general rule, that is not where people want to watch TV.

Very similar to the TiVO phenomenon (the Digital or Personal Video Recorder), the media companies will bypass these development and leave them behind, as they have a far larger market power to incorporate new developments within their own environment. NBC has developed an interesting service, Hulu, which comes with a widescreen video player and allows for media sharing without the copyright hassles that a service like YouTube brings with it.

1. Synopsis

The fact that this was my third trip to China in twelve months demonstrates that it is becoming an increasingly interesting place. This time we started in the capital of Yunnan Province, Kunming, and proceeded from there to Dali, Lijang and Zhongdian before going to Beijing. The trip coincided with the 17th Party Congress of the Chinese Communist Party, where the policies for the next five years will be laid down. Slow political progress and fast economic progress were the outcomes. Telecommunications was not a particularly hot issue but nevertheless, in and around the Congress, interesting facts, figures and policies could be picked up.

2. Travelling into Regional China

Travelling within China is becoming more and more of a problem. The airline system is over-used and under-staffed. Flights can simply be cancelled without notice and this is followed by a wild scramble at the airline desk, with 400 people trying to change their flight and only one airline staff member behind the counter.

Anyone who has travelled to China would know that the Chinese are not patient people, and the battles that take place at the desk are often most unpleasant. This reinforces the advisability of including a local guide in your itinerary, even if you are a seasoned traveller.

But, putting all that aside, the highlight of this trip to China was that we travelled beyond the east coast where our business contacts are.

This time we went to the province of Yunnan in southwestern China. Starting from the capital, Kunming, we journeyed to Dali, Lijang and Zhongdian (known in James Hilton’s novel Lost Horizons, as ‘Shangri-La’). The altitude in the country we covered varied between 2,000 and 4,000 metres, with many snow-capped mountains – a stunning environment. This was the first trip to China where we enjoyed a clean environment and clear skies; at the same time we heard on TV that Beijing and other cities on the east coast were experiencing shocking pollution, due to fog.

In Yunnan, it’s the people who make this province very special indeed. It is the home of 50 of China’s 56 ethnic groups and the mix of cultures is unique. I was surprised and impressed at the enormous effort that goes into maintaining the traditions, languages and cultures of these communities. China has been unified in way or another for more than 2,000 years and yet the old cultures are still well and truly alive. The people are very proud of their culture and heritage and they are supported in this by the federal government.

And, with the exception of the Tibetans, the various groups seem to be quite happy to live under the Chinese umbrella.

2.1 Catching up with the China Boom

My first impression of regional China was similar to what I felt when I visited China five years ago, after an absence of 15 years – absolute awe.

Kunming has a population of close to six million people and has the same metropolitan characteristics as the cities on the east coast. True, the pace is not as fast as on the east coast and developments might not be as glamorous. It is a bit more laid-back and there is, naturally, a more rural atmosphere. In general, however, the same increased prosperity is evident – lots of new developments and a great deal of progress in infrastructure, communications, personal income, etc. And the people, in general, appear happy.

But much smaller cities, such as Dali (three million people) and Lijang (only one million J) are showing similar signs. However, as the rest of the country is beginning to catch up with the east coast, the further we travelled the closer we seemed to get to the start of the China boom.

A good example of this was Zhongdian, a Tibetan town not far from Tibet proper. Most parts of the old city have quite recently been demolished and awesome new buildings have now risen from the ashes. These new buildings were either approaching completion or had just been finished.

I am not talking about a few new streets here. I am talking about the entire inner city! Streets and streets of new buildings, all in a modern yet definitely Tibetan style – very tasteful – and the whole development allows for at least 50 years of growth.

As I have said in previous reports on my travels in China, it is sometimes heartbreaking that people have to lose their houses to allow for progress. The reality, however, is that most of these houses are slums and, while I feel for the people, there is really no other way to improve the conditions of these very poor communities. People in some of these neighbourhoods live in absolute poverty, with appalling heath conditions; yet many are reluctant to move to modern multi-storey flats that are often a fair distance from their previous homes.

I must say that I have seen far more humanitarian poverty and misery in (democratic) India than I have observed in (communist) China.

Nevertheless the majority of Chinese people are very poor and this is at the same time China’s weakest point. The current sharp increases in energy prices, is hurting regional and rural China the most and this is where the majority of these poor people live. Most uprisings and revolutions in China have started in these areas.

Back to Zhongdian ….. the town is also a tourist destination and, here also, a significant part of the inner city has been rebuilt in the traditional Tibetan style. All buildings are in timber, beautifully designed, carved and painted, but, with the exception of one historic building from the Ming period, all these ‘old’ buildings are new. Again they are tasteful, not tacky, and with none of the trappings that some spoiled tourists look for. Local culture and tradition has been maintained, but good restaurants, coffee shops, tasteful craft are also available.

2.2 Telecommunications Rule!

Two blocks in the main drag of the modern town consist of telecommunications shops; commercially they dominate the main street. China Telecom, China Mobile and China Unicom are there, of course, but there are a dozen other smaller stores with mobile phones, MP2 and MP3 products. And, right in the middle, is the Telecommunications Hotel.

All the buildings are ultra modern in design and I would argue they look better than many telecoms shops in other parts of the world.

To return for just a moment to the local environment – Zhongdian is situated on top of a rugged mountain plateau 3,500 metres high. It is a harsh environment and in the suburbs on the outskirts of the new inner cities (500 metres from the glamorous telecoms shops I mentioned above), yaks, pigs and chickens own the roads.

3. Yu Hu Connected to the world

Travelling even further into the countryside we went on foot into the village of Yu Hu (Jade Lake). There are only Tibetan farms in this village. It is situated at the foot of the 5,600 metre high Yu Long (Jade Dragon) mountain. And through the middle of the village, just above the main street, which is continuously flooded by water coming down from the snow-capped mountain, runs a thick telecommunications cable.

With the help of our guide I had a conversation with a farmer who was walking out of his house as we passed by. He told us that he was 74 years old, had lived all his life in this 400-year-old village and was on his way to play a game of or croquet with his friends. The telephone had arrived in his village three years ago, and everybody also had satellite TV (35 channels). ‘I am connected to the world’ he said, putting his hand in his pocket and producing his mobile phone.

4. Tibetan Monks with PDAs

One of the highlights of our trips was a visit to the Songzanglin Lamasery of Tibetan Buddhism, the largest of its kind in Yunnan. I was completely blown away by what I saw that morning, the highlight being watching 400 monks in prayer, chanting in this ancient building. (I have written a separate account of this experience.)

We visited this sacred place on a sunny but cold October morning. Imagine a huge, cold, half-lit hall with shrines along the walls, lots of incense burning, huge statues of Buddha and, in the middle, those 400 red-robed monks sitting cross-legged on about 30 wooden benches, some with Tibetan firepots next to them to give a bit of warmth.

Yet, to my amazement, we saw several monks using PDAs, accessing the Internet and others sending SMSs from their mobile phones.

5. And everywhere, mobile connection

I would not say that we travelled into remote areas, but we certainly were in the country, between mountains as high as 6,500 metres. Yet we had reception everywhere we went, even in the fairly remote Padacuo National Park.

How is it, then, that where we live in Bucketty, between hills 300 metres in height, 100Km from Sydney, we have no mobile reception?

The conclusion I have come to is that the rest of the world hasn’t even begun to grasp what is happening in China. There is no point in talking about where China will be in 25 or 50 years’ time – it is already leapfrogging the rest of the world in many ways and the developments taking place there are all implemented with a long-term vision at their core. The infrastructure has been built according to a 25-50 year vision and, when fully employed and utilised, this will put the country ahead of many parts of the developed world, where most plans do not extend beyond the next quarter.

6. Hard to compehend the speed of progress

By any standard the developments in western China are as impressive as those on the eastern seaboard. However, within the spectacular Chinese economy wealth grows faster in the east than in the west. President Hu Jintao has spent a lot of time travelling in rural regions, demonstrating that the government is working hard to lift the economic standard in those areas also. This is a massive task, but progress has been made and many of the processes that have been put in place will deliver in future years.

This time, more than on my previous trips along the east coast, I witnessed the industrious nature of the rural Chinese people and the innovative solutions they apply to the many problems faced by them. This gives me great confidence in the overall development of the country.

While it is true that 80% of the rural population still has many decades to go before it will reach our level of living standard, I did not see any real poverty. Yes, there are beggars; but I saw more of them in New York than I saw in Beijing. And, yes, some of the work I saw people doing would be unacceptable in the developed world, but they are willing to take on all kinds of work to advance themselves and their families.

Everywhere in the countryside we saw farmers building new farmhouses, and most were very substantial, three-storey buildings. Cooperation between rural families is also helping communities to move forward – this, of course, is not dissimilar to the way communities in the developed world have moved forwards over the last 200 years or so.

While all the attention is directed at the east coast, the true strength of China rests in its rural economy. But this can also prove to be its weakness if the gap between the rich east and the poor west increases, and this certainly seems to be the trend at the moment. The lives of people in urban China are advancing far more rapidly than those in country areas. More work certainly needs to be done to improve the lifestyle of those hard-working rural Chinese people – they truly are the backbone of the country.

The 17^th Congress (see below) did promise more progress in free education and healthcare services and this would greatly benefit the rural population.

From what I have seen during this trip these people deserve great respect for their hard work, often under extremely harsh conditions. However, we always received a big ‘ni hao’ (hello) back from them, generally accompanied by a big smile.

7. The casualties of progress

My conversations with these people confirmed what I had also picked up from official sources – that there is a great deal of injustice in regional China.

For instance, in Zhongdian some local people sold their houses for 300RMB ($50!!) to make way for expensive new buildings.

On the outskirts of booming regional towns, developers (often party members linked to the local government) force farmers to sell their land. When they are given, say, 30,000 RMB ($5,000) they think they are millionaires, only to discover that, with no new income they quickly run out of money. Often poorly educated, these people don’t realise that they have no economic future, as they can no longer farm and they find it difficult to find any other work. They may be forced to hand-hew rocks for roadworks, or else live from a barely existing social benefit system.

The federal government is addressing the is

sue but, as the saying goes in China, it’s a long way to Beijing.

8. 17th Party Congress

8.1 The Communist Party (Chinese Style)

The trip coincided with the 17^th Party Congress of the Chinese Communist party. This 237-member presidium is setting the policies and directions for the next five years. It is a most interesting event and one of the very few opportunities for outsiders to get a glimpse of what is happening behind the often very secretive Chinese system of politics.

At a political level any discussion of democracy revolves solely around the selection of party delegates.

The political wheel, however, turns extremely slowly. It was suggested at the 12^th Congress that some of the internal procedures should be opened up, creating a more competitive arena for the election of delegates. The subject was first mooted in 1989 and only now is some progress apparently being made.

The Communist Party remains the most influential organisation in relation to decision-making in every aspect of Chinese society and the Chinese economy. It therefore is no surprise that in a buoyant Chinese economy, where an awful lot is at stake, membership of the Party has increased more than 100% since the last Congress in 2002.

In all the Party has over 70 million members, representing 5.5% of the population.

8.2 Bureaucratic power breeds corruption

However, because of its influence and the relatively low level of democratic scrutiny a massive amount of corruption and even more serious criminal behaviour takes place everywhere in bureaucratic China.

A crackdown was launched in 2003, during which more than 110,000 party officials were investigated. As a result 2,500 were dismissed or demoted, 1,300 were disciplined and over 400 are under judicial investigation. The government hopes that this will encourage most of the others to lift their game. It is increasingly making the results of the crackdown publicly available, to send a warning out to others. However that was only the tip of the iceberg – corruption is so endemic in the Chinese system that change will only be achievable over a long period of time, and with a great deal of hard work.

In the current Congress selection process more attention is at last being given to investigating the candidates’ backgrounds, to avoid what is becoming a public embarrassment for the national leaders.

Corruption is also impacting heavily on the billion people in regional China. They are suffering from the day-to-day effects of the corrupt system, more so than in the cities; in the cities the negative impact of corruption is at least partly compensated for by the enormous economic growth that the Chinese city dwellers enjoy.

8.3 New Government - More of the same

At the 16^th Congress Hu Jintao was elected President and, in accordance with good old Chinese tradition, now (five years later) is the time for him to consolidate his power base.

Before the 17^th Congress had even commenced the jockeying for new positions had well and truly started and, as is always the case everywhere, the battle is between the traditional, more conservative forces and the new liberal factions of the Party (a battle that is also reflected within Chinese society).

The instigator of China’s current economic boom, former President Deng Xioping, is still enormously influential within the Party. His favourite, Xi Jingping (the Party boss of Shanghai) and Hu’s favourite Li Keqiang were both elected to the inner circle of nine – although it was rumoured that Hu would have preferred to bring this number back to the original group of seven.

Xi and Li are both seen as the president and premier. Xi is certainly a progressive leader, and he is a leader who will be able to do business with the rest of the world. He is very well-respected among the progressive factions of the Party, as well as overseas.

However, the overall outcome of this year’s Congress was very much ‘steady as you go’, ‘don’t rock the boat too much’ and a continuation of the current one-party system, now labelled ‘communism China style’. In this context the word ‘democracy’ was used many times.

The major outcomes of the Congress were:

· Increase government transparency

· Increase government accountability

· Fight corruption

· A serious approach to environmental protection

· Continuation of fast economic growth

· Political stability (one-party system)

9. Telecommunications

Telecommunications was not a particularly hot is

sue but nevertheless a few morsels could be picked up in and around the event.

There were some interesting statistics in the Congress papers from the Chinese National Bureau of Statistics (NBS).

Table 1 – Telecoms Statistics 2002, 2006

Service Statistic	2002	2006
Total business volume of postal and telecoms services	Y570 billion	Y1,532.6 billion
Business volume telecoms services	Y521.2 billion	Y1,459.5 billion
Fixed telephone subscribers	214.2 million	367.8 million
Mobile subscribers	209.6 million	461.1 million
Business volume SMS	138.6 billion (2003)	429.5 billion
Internet subscribers	60.9 million	140 million

(Source National Bureau of Statistics)
In other data from NBS, over the same period long-distance calls increased by 150%.9.1 Internet

The government will retain its iron grip on the Internet as it says it wants to make sure that information technology serves the country’s development, and information deemed harmful should be circumscribed.

There was also a clarification regarding cyber-attacks – it is the hackers who should be blamed for this and not their countries. This clarification was, of course, a response to the blaming of foreign countries for recent cyber-attacks in South East Asia. China mentioned that its government computers have also been victim to cyber-attacks, in particular e-espionage.

9.2 Mobile

I think this is the fifth time in a row that I can report that no progress has been made regarding 3G developments in China. The industry has been waiting for this since 2004.

The official line is that the country wants to see a completely sustainable package in relation to 3G. It wants to see, not just technology, but also a good business case for it, and there is reluctance to is

sue licences that could lead to commercially harmful results for the companies involved.

They also pointed to 3G developments in Europe and North America, indicating that the business case for 3G has certainly not yet been proved.

Officials questioned whether the current 3G technology would be sufficiently robust to allow the industry to move successfully into new mobile data markets.

I certainly have some sympathy for these arguments. I, also, have consistently questioned the 3G technology and the business models that are currently deployed around the globe. However some of my colleagues in China argued that the position taken was simply a ploy to give the Chinese TD-SCDMA standard more time to develop, so as to allow the Chinese to develop their own system.

My comment here would be that if, after all those years of development, the Chinese still haven’t figured it out there must be something seriously wrong with the technology. Nevertheless, I wouldn’t be surprised if China were to take that development a step further and look at a 4G, rather than a 3G, technology. It looks as though the Chinese are going to keep us guessing for a while longer.

It also would be more difficult to launch the TD-SCDMA standard before the Olympic Games. In order to get some decent penetration, reasonable time would be needed to roll out such a service, and that time is certainly starting to run out.

With the relatively low costs for mobile data service there has been an explosion of new companies involved in this new industry. Some of these, such as Linktone, Kongzhong and Hurray, have even listed themselves on NASDAQ. According to NBS the total revenue of value-added services has now reached Y108.8 billion.

Another Chinese success story is Gnome, one of China’s largest electronic retailers. They began to sell mobile phones in 2002, and in that year sales reached Y5 million. In 2006 revenues stood at a staggering Y9.8 billion. They estimate that they will double this figure during 2007!

10. Media Laws

Interestingly, the Chinese government has indicated it will relax media laws. This will see Chinese media being allowed to become listed on the stock market. Considering the government’s obsession with media control this announcement comes as rather a surprise. While discussions have been taking place for many years, it was expected that, in order to maintain control, media companies would perhaps be split, allowing a tighter control over the content.

But, no. That will not be the case – and companies will be able to list their entire company. The first of a dozen listings are expected within the next two to three months.

The new laws will apply to electronic and printed media and even Government and Party websites!

The government rationale seems to be that through listings these companies can acquire more investment, which would allow them to expand and would, in turn, lead to an increase in the reach of government propaganda.

11. International Telecommunications and Digital Media Mission to China

As you know, I am very excited about the economic and social developments in China.

Over the last few years I have visited China five times and have made contact with several Chinese telecommunications and digital media companies, as well as with government representatives.

I have also organised a number of Roundtables in China. Given those contacts and experiences – and with a successful Broadband Mission to the Netherlands under my belt – I have made the decision to organise a 4-5 day telecommunications and digital media mission to Beijing in May/June 2008.

If there is sufficient interest in the media component, I intend to tap into my contacts. I have been able to build links with the Chinese media through the annual conferences the UNSW has organised for this group, where I have addressed them on the topic of new media developments.

Mission Topics

Telecoms

· FttH

· smart grids (BPL)

· WiMAX,

· 3G and 4G

Digital Media

· mobile content

· Internet media

· entertainment (IPTV, games, social networks)

· e-health

· e-education

The focus will be on visions, strategies, new trends and developments (non-technical).

My rough plan for the Mission is as follows:

On the eve of the event (in Beijing)

Reception/Official Welcome

Day 1 – Telecoms and Digital Media Services Roundtable

This would be a full-day Strategic Business Roundtable between the delegates and Chinese telecommunications and digital media companies.

I will give a presentation for the Chinese delegates and I envisage that some of our delegates will also present on the topics listed above. On the Chinese side, I envisage similar strategic presentations from companies such as China Telecom, China Mobile, China Unicom, from digital media companies within CCTV, as well as from the Chinese Government.

Day 2 – Telecoms and Digital Media Networking Day

On Day 2 I plan to organise a networking event.

For this I intend to invite some of our customers in China, plus other Chinese telecoms and digital media companies. If you book early I will try to organise some matchmaking, with the assistance of our BuddeComm’s sales and marketing partners in Beijing – but please be aware that this takes time. I intend to invite up to 50 selected Chinese companies, so this will be a very focussed and unique opportunity to make valuable contacts in China.

I will start this day with a presentation on the future developments of the topics listed above. This will be followed by 3-5 minute presentations from the participating delegates, as well as from the Chinese participants attending on that day.

Both days would include networking lunches and dinners.

I envisage a matched number of visiting and Chinese delegates on Day 1 and between 25-50 Chinese representatives on Day 2.

Site visits (including the Beijing Olympic Site)

There will be a program of company visits and I will also endeavour to organise a visit to the Beijing Olympic Site, with a presentation on the ground-breaking telecoms and new media aspects of those preparations.

Private arrangements

Obviously there will be plenty of opportunity for you to make individual plans and appointments. I am sure that either Austrade or BuddeComm will be able to assist you with your individual business requirements.

Information Day

Before the trip I am also planning to conduct a half-day information day on telecoms and digital media developments in China for the participating delegates. This will take place in Sydney, Australia. A copy of this presentation will be made available to delegates from other countries prior to the Mission.

Organisation and Costs

Depending on your initial reaction I will make a decision to proceed with this plan. We would need between 10 and 15 delegates. I estimate the costs of participation in the Mission at between $2500 and $3500 per person (Australian delegates need to add 10% GST).

Delegates will be responsible for their own travel and accommodation costs.

I will be employing a local secretary/guide who can assist delegates with their bookings and other needs. Based on my own travel experiences, I strongly recommend that first-time travellers to China use this option, or at least seek advice before making their arrangements.

Registration of interest

If you are interested in receiving further information and updates, please email me to register your interest in the proposed Mission, so I can keep you informed about the progress of this activity. Of course please fell free to pass this message on to others who you think might be interested.

Looking forward to your response

Paul Budde

12. Other Reports

China (annual report)

China - Broadband Market - Overview & Statistics

China - Convergence - Digital Satellite TV, Digital Terrestrial TV & iTV

China - Convergence - Triple Play & Digital Cable TV

China - Infrastructure - FttH and NGNs

China - Infrastructure - IP Networks

China - IPTV & Video Broadband Market in 2007

China - Key Statistics, Telecom Market Overview & AnalysisChina - Major Telcos - Overview & StatisticsChina - Mobile Communications - 3G DevelopmentChina - Mobile Communications - Voice and Data ServicesChina - Mobile Market - Overview & StatisticsChina - New Internet EconomyChina - Regulatory Environment