China Telecom intends to shed the mantle of “traditional network carrier” through large-scale NGN deployment

China: parting with tradition: China Telecom intends to shed the mantle of “traditional network carrier” through large-scale NGN deployment

Ken Wieland

China Telecom is in a period of network and business model transition. Like many wireline incumbents around the world, it has seen a drastic slowing of fixed-line voice revenue growth. Due to a mixture of deregulation and the growing popularity of voice over IP, China Telecom’s share of the country’s voice market has been whittled down from 100 percent in the mid-1990s to a worryingly low 30 percent. A strategic response is now required.


“The fixed telephone service is moving to mobile and IP and so we are faced with a severe situation,” says Zhao Huiling, vice president of the China Telecom Beijing Research Institute. “Network and business transformation is the only way out.”

To achieve this “transformation,” China Telecom has been setting its sights on a next-generation network (NGN) since the start of the decade. This, it believes, will provide it with the tools to move from “traditional network carrier” to “comprehensive information provider.” In practical terms, that means consumers will be offered a lot more than basic telecom services; entertainment and information services, including IPTV, are all now seen by China Telecom as key applications that can drive revenue growth. As for the enterprise customer, China Telecom’s intention is to use the NGN as a basis for making a stronger push into the ICT outsourcing space with a view to generating higher-margin revenue.

But making this strategic change, as Huiling concedes, will not be without danger: “The telecom industry is moving from a low-risk and high-profit business model [before the advent of IP and deregulation] to a high-risk and low-profit model,” she says. However, to remain a traditional network carrier–with the prospect of ever-decreasing revenue–is not, understandably, seen as an option by China Telecom. “We admire the courage of BT [for moving aggressively with the deployment of its 21st century network],” Huiling adds.

Making the Switch

China Telecom is proving to be no NGN laggard either. After three years of tests and trials, it says it is now ready to start large-scale commercial implementation of a NGN switching network. This will make it one of the most proactive NGN carriers in the world.

Since 2002, China Telecom has been trialing Huawei softswitches in Guangzhou, Shanxi and Shanghai and says that 2005 will be a ‘period of [NGN] commercialization in those areas. In the special economic zone of Shenzhen, which also uses Huawei equipment, China Telecom (through its Shenzhen Telecom subsidiary) transferred 120,000 PSTN lines onto a softswitch platform in February, which involved the replacement of four local exchanges. The following month, Shenzhen Telecom completed the construction of its “smart network” over which the services will be delivered.

The Huawei solution comprises the softswitch as the call control center; the SHLR (subscriber home location register) as the subscriber data center; and the ENIP (enhanced network intelligent platform). The capacity of the system so far deployed in Shenzhen is 600,000 lines.

“China Telecom has been very systematic in its testing of the equipment, but softswitch technology has been mature for around two years,” says Guo Haiwei, vice president of Huawei. “Of course, the significance of NGN [of which the softswitch is just a part] does not simply lie in PSTN replacement. It is a converged platform that can enable carriers to move forward with new services [cost-effectively] while simultaneously supporting legacy services.”

The new services that China Telecom is pushing–courtesy of its initial softswitch rollout–are targeted at both the consumer and enterprise user. For the consumer, Shenzhen Telecom has already launched an IPTV service, available to its broadband subscribers. Other services include video calling and UPT) universal personal telephone). UPT allows Shenzhen Telecom’s customers to have one unique number for their mobile, office and home devices–so, when called, all devices ring simultaneously or sequentially according to the customer’s preference. (In the case of China Telecom, the mobile devices are limited to PHS handsets as it does not, as yet, have a cellular license.)

For the enterprise customer, Shenzhen Telecom has launched an IP Centrex service over its NGN platform (which includes a short-number dial service within a group of broadband subscribers). Other services include a unified communication system, which has directory information and a click-to-dial facility on the PC; a multimedia colorful ringback tone service, which allows companies to display multimedia information (such as ads) to incoming callers; Web800 (a PC-to-phone 800 service, which allows enterprises to offer customers browsing their Web pages the opportunity to make a collect “click-to-dial” to their organization); and videoconferencing.

It’s clearly still too early to say how popular these new services will be and how much more revenue they will generate for China Telecom. However, by decreasing its opex costs through softswitch deployment (Shenzhen Telecom reports that in comparison with a TDM switch, a softswitch takes up 60 percent less space and consumes 70 percent less power), China Telecom has no doubt calculated that it can, at the very least, go some way to protect its margins on traditional existing services that are experiencing price erosion as a result of competition.

However, if BT’s calculations are to be believed, a gradual migration from PSTN to NGN reduces the impact of opex reduction. China Telecom’s NGN migration will surely be gradual given the vast and sprawling nature of its existing circuit-switched network that serves some 200 million customers. “You don’t get real cost savings [with NGN] until you turn the other networks off,” says Malcolm Wardlaw, CTO of the BT Group.

As has been well documented in trade and even mainstream publications, BT has set itself an ambitious timetable for its 21CN rollout. By 2009, the UK incumbent plans to turn off its PSTN and have all traffic carried over an IP-based NGN platform. In doing so, it says it can reduce annual opex by [pounds sterling]1 billion. For its part, China Telecom has announced no deadline for PSTN shutdown, nor does it reveal the extent of opex savings it hopes to achieve. Huiling will only say that “NGN will be key to our strategic transformation over the next 10 years.”

Beyond Control

For China Telecom, a true NGN is an end-to-end solution which encompasses a multitude of components. It not only represents a softswitch replacement of traditional Class 5 PSTN switches (the control layer) but also the rollout of a next-generation data network (the bearer layer) and broadband access networks. “The quality of the bearer network is what most operators are worried about right now,” Haiwei says, “not the quality of the softswitches.”

To boost the performance of its bearer layer, China Telecom began planning the rollout of its second IP backbone last year, known as the China Telecom Next Generation Carrier Network, or, more simply, as CN2. Intended for the delivery of advanced services (e.g., VPN, high-quality IP voice, video streaming and 3G mobile applications), CN2 is MPLS-and IPv6-enabled. It will offer eight classes of services with voice given top priority to ensure a carrier-grade service. By 2008, China Telecom–with equipment supplied by Huawei, Cisco, Juniper and Alcatel–aims to have CN2 reach 194 cities throughout China.

For the access part of the NGN equation, China Telecom is looking at xDSL, PON, Ethernet and WLAN technologies (By the end of 2004, it had 14 million broadband subscribers). It’s also planning for 3G mobile networks and beyond (B3G). During 2004, China Telecom says it completed the necessary field tests and network planning for 3G even though the Chinese authorities have yet to reveal their hand as to which 3G standards will be licensed and who will be the recipients of those licenses.

However, as the country’s largest telco and highly active in the 3G testing process in cooperation with China’s Ministry of Information Industry, it would be unthinkable for China Telecom not to be awarded a 3G license. As such, this opens the door for China Telecom to offer services based on fixed-mobile convergence and perhaps will hasten its speed to adopt IP multimedia subsystem (IMS).

During the past 12 months, major western vendors have been loudly proclaiming FMC as one of the key virtues of IMS. Based on the SIP standard, IMS allows access to the same services, regardless of any device and access technology (fixed or mobile). For example, a person, courtesy of IMS, would be able to access his or her directory information which resides in the network from either a mobile phone or the PC.

IMS also promises to facilitate seamless call handover between fixed and mobile networks, enabling fixed-line in-cumbents to claw back traffic from mobile networks when users are in particular zones, such as the home or office. By breaking down the boundaries between networks in this way and providing to carriers the means of delivering a raft of new services in a more cost-efficient and timely manner (e.g., push-to-talk, video conferencing, IP Centrex), some vendors would have us believe that IMS is the icing on the NGN cake.

But China Telecom is not biting–at least not yet. “While network convergence based on IMS is technologically feasible and is an important part of the NGN architecture, it is not a mature standard,” Huiling says. “There is still a lot of work to do before large-scale deployment is possible. The softswitch and IMS have to be seen as two very different steps to the NGN [from the PSTN] and will co-exist for a very long time.”

Curiously, BT has been less circumspect on IMS. “Although IMS is not totally ready, we believe it’s good enough,” Wardlaw says. BT intends to launch an FMC service this summer–a mobile handset that can access both fixed and mobile networks–on the back of a MVNO agreement it signed with Vodafone UK last year.

NGN Growth

The NGN market in China appears ready to move, a perception underlined by the major local vendors. “Last year, our [fixed-line] NGN sales in China was US$12 million, but this year we expect that figure to reach US$200 million,” says Huawei’s Haiwei. “In 2006, we predict those sales will rise to US$300 million.”

And like Huawei, ZTE believes that a broad NGN portfolio, which covers both the control and bearer layers–combined with its extensive rollout experience in China–will put it in good stead when competing for NGN contracts on the international stage. “We’ve already constructed China’s first and largest softswitch network for commercial use by China Netcom [China’s second-largest fixed-line carrier], which covers more than 20 cities nationwide,” points out Chen Jie, vice president of ZTE.

China, traditionally, is cautious about adopting emerging technology. But by moving now on NGN, it suggests that the equipment–if not the business case–is indeed ready.

Targeting Trends

Wireless and Landline Revenue in China

$ Billions

Wireless Landline

2001 21 24

2002 26 24

2003 32 28

2004 37 32

Source: USITO

Note: Table made from bar graph.

Carrier Deployment Options

Softswitch TDM switch

Equipment Total 13 cabinets Total 22 cabinets

Occupied space Per rack: 800mm X Per rack: 550mm X

600mm (total: 6.24m2) 1100mm (total 13.31m2)

Power consumption 10.7 KW 28.8 KW

Maintenance cost Centralized maintenance Local maintenance

Source: China Telecom

Ken Wieland is editor of Telecommunications[R] (International). (

COPYRIGHT 2005 Horizon House Publications, Inc.

COPYRIGHT 2005 Gale Group