White Paper: How China Telecom’s Transformation Enables Growth

China Telecom’s multi-pronged transformation strategy is changing the company into an integrated information services company at the forefront of technology and service innovation. The transformation strategy benefits shareholders and China Telecom’s many types of clients, including households, small and medium enterprises, multinational companies and global carriers.

The Future Is Now

Predictions that leading economists and technologists once made about China are now being validated. Each prediction is like a brush stroke that helps paint a vibrant image of this flourishing nation, helping to strengthen the global economy and transform the lives of its 1.38 billion people. The experts said:

  • China would become among the fastest growing economies. Indeed, Indeed, real GDP growth averaged 9 percent since 1998 and China has become the world’s second largest economy. In the first quarter of 2016, China’s economy grew at an annual rate of 6.9 percent, down slightly from the end of 2015 but still very much in line with the official target.
  • China’s entrance into the World Trade Organization (WTO) would re-shape the constitution of its GDP. China’s economy has swung from agricultural based to manufacturing based, and the services sector has become increasingly important as a driver of the economy. It accounted for 48.2 percent of China’s economic output in 2014.
  • Increased income levels among the population would create demand for products and services that global companies would enter China in order to meet. Much publicity covered multinational companies (MNCs) that entered China at the turn of the century to test the market, but now MNCs are executing market penetration strategies on a large scale.
  • China would surpass even the United States in Internet usage. The country has over 700 million Internet users, double the population of the U.S.

Indeed, the China that had been envisioned is upon us. The future is now.

Yet countries blessed with history that is as long and rich as China’s understand that further prosperity and progress require smart planning and investment. Nations never stop evolving. As the largest fixed-line operator in China, China Telecom offered a strong foundation upon which the country could build over the past few decades. With wise management and its own set of predictions for the future, China Telecom set out in 2004 on a path of transformation in order to better serve its customers, the global market and its shareholders.

Relationship Between Telecommunications Growth and Economic Change

World Bank studies have shown that there is a positive correlation between economic development and telecommunications density and available services, and some studies even claim that a causal relationship exists in both directions. Telecommunications growth has also been linked to other stimulants like increased education, improved access to information, development of research centers and other positive changes on an economy and a culture.

The telecommunications sector in China has been one of the fastest growing sectors in China. The country’s 371 million phone subscribers account for one fifth of the world and its 131 million Internet users make up one tenth of the world’s users. In 2014 alone, telecom services spending in China amounted to $182.9 billion USD.

China Telecom’s Transformation Strategy Delivers Diverse, Branded Communications Solutions to Global Clients

China Telecom is the major supplier of integrated communications services in China, managing more than 220K wire lines and offering data, voice, Internet and converged services throughout the country. In a study of Chinese consumers conducted by Nielson Media Research and reported that China Telecom was highlighted as one of only 17 “Platinum Trusted Brands” due to its outstanding performance in the survey. A company with China Telecom’s size and success might have rested on its laurels, but China Telecom has not. Leveraging its strong foundation, the company announced a bold transformation strategy in 2004, with the goal of putting the company in a position to diversify its operation, support the growth of the Chinese economy and in turn, the world economy, and continue to strengthen its brand.

Chairman and CEO of China Telecom Wang Xiaochu explained that the company is using the transformation as a platform to encourage the growth of both revenue and the customer base and to win the race to occupy the top position of future information services. Expansion of broadband services, convergence of voice, data and video and a move from product management to brand management all characterize the transformation. He explained that the transformation strategy has brought about three important changes.

First, China Telecom is optimizing its revenue structure, whereby voice revenues are a diminishing percentage of overall revenues. Revenue from non-voice services such as broadband access, fixed network value-added services, integrated information services and systems integration and management has been growing steadily.

Second, the company is introducing new bundled and branded offerings to combat price erosion and make them more “sticky” to customers. Branded offerings like Best Tone (an integrated information inquiry service for phone users), BizNavigator (an integrated application suite that meets the needs of enterprise clients) and One Home (an integrated voice, data, TV offering through the home box) address the needs of three target groups; personal, enterprise and household. Fixed-line based voice search services, MPLS/ VPNs and IT solutions to support mission critical applications have all been launched and are enjoying promising adoption. The company is also offering “seed services” such as IPTV.

Third, China Telecom continues to strengthen its ability to grow with precision management that focuses on delivering value to shareholders and outstanding products and services to its clients. China Telecom’s management had the foresight to understand the importance of serving MNCs. While the company continues to invest in infrastructure, branding and customer service systems in China, it is at the forefront of expansion to serve MNCs. The company was the first among its peers to open operations in North America, and now has offices in Hong Kong, London and Brazil, with company-owned information technology services termed “Information Silk Road” that offer seamless services between the Americas, China, Asia and Europe.

Transformation in Action

China Telecom’s transformation is manifested in the lives and livelihoods of individuals, households, Small-to-Medium-Size Enterprises (SMEs) and MNCs doing business in China. Let’s take a closer look at three strategies that epitomize China Telecom’s transformation in action and indeed, have placed the future in our hands: BizNavigator, CN2 and China Telecom’s global expansion to serve MNCs locally.

BizNavigator

Biz Navigator was conceived as a way to provide IT support to local offices of MNCs and to enhance the competitiveness of SMEs, whose importance to the changing economy was recognized. Since its launch, it has been adopted by well over 500,000 SMEs.

China Telecom’s BizNavigator has proven valuable to SMEs and global MNCs with offices in China. BizNavigator exemplifies China Telecom’s mission to become an integrated information service provider, integrating communications services with application support services. BizNavigator provides industrial IT applications support for processes like sales, logistics management, supply and demand management, travel services, tax and other financial reporting. It allows clients to manage domain names, provides corporate e-mail, enables website creation and maintenance, provides virus protection, helps manage customer contacts, provides a data-rich office automation platform and more. All these are provided on a base of communications services ranging from broadband access to interactive teleconferencing and support services like equipment procurement and maintenance and LAN deployment.

As an example, BizNavigator was deployed in support of Guangzhou’s “Bridge for Business and Trade” service, which is a portal to connect suppliers with buyers. After just one month, there were over 22K daily hits on the site, and messages among the members increased at a rate of 2K per day. BizNavigator is delivering the future of integrated information services to China’s businesses and provides an excellent example of China Telecom’s Transformation Strategy in action.

The Business Internet Comes to Life

With the staggering demand for Internet services coming from within China and outside from MNCs expanding into the region, China Telecom’s leadership made a bold move to build an entirely new global Next Generation Network (NGN). The network was dubbed China Telecom Next Generation Carrying Network, or CN2, and it began rolling out in 2005. CN2 provides the global coverage, network technology infrastructure and management capabilities required for MNCs to successfully leverage China in their growth strategy. It’s an advanced communication and information network for the future.

Telecom Magazine reported that CN2 makes China Telecom one of the most proactive NGN carriers in the world. CN2 is an IPv6-capable backbone network leveraging new softswitches and protocols like DiffServ and MPLS, which boost performance. Five classes of service and QoS help CN2 guarantee reliability and performance of mission-critical and high-priority applications. Its MPLS-optimized architecture also enables Frame Relay and ATM traffic to be transported over a Layer 2 VPN, which promotes network efficiency and scalability. CN2 provides a highly-advanced network on which to deliver high value services using technology that will transition well into the future, allowing the company and its subsidiaries and partners to provide cost effective new offerings.

Expanding Around the World

Businesses today are networked for success. For many companies entering or expanding into China, the business plan depends on the availability of reliable communication services throughout the region. Without them, critical success factors cannot be met. China Telecom established subsidiaries like China Telecom Americas, China Telecom Europe and China Telecom Hong Kong to help assure that MNCs’ global operations thrive.

China Telecom and its subsidiaries consistently deliver uncomplicated solutions to complex problems – problems that stem from rapid expansion in China, the need to distribute content to tens of millions of people or to synchronize mission-critical applications on multiple continents. China Telecom’s clients depend on the company to enable their growth – and China Telecom – along with its local subsidiaries in Asia, the Americas and Europe – deliver.

China Telecom’s Transformation Strategy leverages the company’s expansive assets including:

  • International bi-lateral connectivity to 100+ countries
  • Broadband access to 300 cities in all 31 provinces
  • Trans-Pacific cables systems, including China-U.S., Japan-U.S., SEA-ME-WE3 in APCN2, SMW3, Flag, TAE and more.
  • CHINANET (China’s largest Internet network) and CN2, the business class IPv6-capable backbone Internet network
  • Over 670,000 employees worldwide who embrace the corporate philosophy “Customer First. Service Foremost.”

Conclusion

As predicted, China is a major driver in the world economy, and its continued effects are expected to be positive. Wise and experienced executives at China Telecom announced a multi-pronged transformation strategy that is changing the company into an integrated information services company at the height of communications services. The Transformation Strategy benefits shareholders and China Telecom’s many types of clients, including households, SMEs and MNCs and global carriers.

The Transformation Strategy today leverages the company’s massive, existing assets, and introduces new products like BizNavigator and CN2 and support services that enable positive change in people’s lives. Transformation enables the rapid growth strategies that MNCs are now executing in the region. No other telecommunications carrier offers the seamless network coverage, services and capacity connecting Europe, North America and Asia that China Telecom does. China Telecom’s network reach and performance help connect people and content and cost-effectively support mission-critical applications around the globe. China’s future is beautifully painted on the canvas for the world to see and China Telecom’s Transformation Strategy makes the colors bright.

White Paper: Access China with Next Generation Networks

China Telecom is one of only a handful of elite carriers that has built entirely new IP networks in order to satisfy the complexities of globally distributed, Internet-based, mission-critical applications. China Telecom’s next generation network initiative, China Telecom Next Generation Carrying Network, or CN2, began its acclaimed commercial roll-out in mid-2005. Corporate entities, public sector organizations, carriers and managed service providers now have access to a broad range of highly reliable, high performance network services through the region’s best-connected and entrenched information provider – China Telecom.

Partnering for Success
Penetration of Internet subscribers, like the distribution of China’s nearly four million websites, is concentrated in more developed regions of China. It parallels the investments that have been made in all sorts of infrastructure such as the thousands of industrial parks that have been created to nurture upstart Chinese business, attract multi-nationals doing business in the region and retain them. What many foreign companies have discovered over the years is that in order to have long-term success in China, finding a strong local partner is crucial. China Telecom Americas and its parent company, China Telecom, helps multi-national companies and carriers develop and execute their market penetration strategies in China.

The Century’s Greatest Innovation

It has been suggested by some pundits that the Internet is the greatest innovation of the last 100 years, having shaped the global political landscape, fundamentally shifted the way economies develop and changed how people live, work, learn and play. The world is getting comfortable in a digital skin. Most of us would agree that the Internet has had a profound effect on our lives. According to Nielsen’s 2010 Global Online Survey, 40 percent of online consumers in Asia Pacific claim that the Internet has helped them make big decisions. Today global ecommerce is booming, e-mail and instant messaging communications have become ubiquitous and vital industries such as financial services rely on the Internet for mission-critical applications.

There’s a common global theme. Driven by consumer and business demand, Europe and Asia are now becoming Internet transit centers, a role that had once been dominated by North America. Data published by China Internet Network Information Center (CINIC) in August 2016 show that Internet adoption and use in China remains strong. The number of Internet users grew by 6.1% in 2015 and currently accounts for over 50 percent of China’s population (CINIC). Consider all of this testament to China’s potential: the country has 721 million Internet subscribers, more than double the population of the United States, and the number of mobile Internet users has reached at least 630 million.

So What’s Wrong with the Internet?
If so many people are using the Internet with positive results, what could be wrong? The Internet on which we depend today is wrought with weaknesses stemming from the fact that it was originally developed as a means for research universities to share information among their computers. As it evolved to be used by consumers, government, businesses, educators and researchers, it remained fundamentally a one-size-fits-all infrastructure.

The Internet’s founders could not have foreseen the level of dependency the global business community now has on the Internet as the foundation for the Information Technology (IT) stack, becoming the network of choice for all kinds of applications and communication methods – from voice to video. Who could have anticipated the many changes to the business environment that now affect all areas of IT, especially the network? Today’s IT executives must now make network architecture and operations decisions in consideration of these trends, which make up the new IT paradigm:

  • Globalization. Whether the company’s increasingly global view is driven by a global client base and/or global sourcing of services or materials, IT – from the network layer up to the business application layer – is supplying the enabling infrastructure to sustain the expansion.
  • A growing reliance on distributed, composite applications. The nature of distributed, composite applications is that resources are spread out among many physical and logical locations and they are comprised of IT assets that were not originally built and rolled out together. These applications are ever changing and leverage both old and new technologies. They are dependent upon underlying network performance to keep application resources on-line, performing at required service levels and synchronized worldwide.
  • A move from batch to real-time transaction processing. Industries like manufacturing, financial services and even retail that used to wait 24 hours to analyze the day’s operations data or complete clients’ transactions are now processing transactions in real time and expect to view performance data in real time through their Business Activity Monitoring (BAM) applications and Executive Dashboards. Real-time transaction processing smoothes network loads, yet also means that unless the network supports classes of service, mission critical financial trading transactions or important updates to the ERP system may experience performance bottlenecks due to a burst of e-mail traffic. Customer Service Level Agreements (SLAs) and IT’s operations performance targets are now higher than ever, and rely on real-time transactions, which in turn require network reliability, accessibility and performance.
  • Intense competition and consolidation in many vital industries. There is extreme pressure in nearly every industry to reduce the cost of operations. Information technology, from the business layer down to the network layer, has delivered cost savings by rolling out systems and processes that automate and control business operations. As new network protocols and services are commercialized by industry-leading communications companies, the cost of IT operations has been further reduced and the new IT paradigm has been enabled.
  • Government regulations. Although many regulations are process-oriented, others dictate stringent IT performance, new reporting capabilities and auditable levels of security in the IT infrastructure.
  • Greater availability and acceptability of digital content and web applications. Integrated Software Vendors (ISVs) and content owners have made billions of dollars of investments in web-enabling applications and creating digital content. The growth of digital content market is spurred by the commercialization of services that enable it to be consumed in a variety of ways; through a television, computer or mobile device. The convergence between mobile and fixed line services; between voice, data and video; and between devices all requires supporting network infrastructure to meet rising consumer demands.

Most consumers and business users of Internet services are incognizant of the new paradigm, but IT executives and network communications providers certainly are. The fact is that the Internet we use today (the majority of it running IPv4 technology) has had millions of patches applied to it in order to help it address this new IT paradigm. And in spite of its shortcomings, the Internet continues to be a strategic part of our lives and the global economy.

China Telecom’s CN2: The Business Class Internet
While many global users may be satisfied with the current Internet, some IT executives, industry analysts and innovators like publicly-traded China Telecom Corporation (NYSE: CHA) have seen both cause for concern and untapped opportunity. China Telecom has the majority market share of Internet users in China and 53% of the country’s Internet backbone. The company controls 70% of China’s local access and has led the country’s telecommunications evolution with service offerings like China VNet (Internet portal) and ChinaNet (IP and broadband network) and was the first Chinese carrier to establish a US operation to serve global clients, China Telecom Americas.

Forward-thinking and resourceful, China Telecom evaluated a constellation of emerging technologies, market conditions and trends and concluded that ChinaNet would meet much of the market’s needs for a long time, yet the company understood that there would remain an underserved market segment. The growing importance of IT to global competitiveness, the increasing dependence on networked applications, the booming economy and the influx of Multi-National Corporations (MNCs) investing in China would require an entirely new global Next Generation Network to meet both the staggering volume of demand for Internet services and the new IT paradigm – one that rests on the power of global, distributed, real-time and regulated networked operations. China Telecom laid plans for China Telecom Next Generation Carrying Network, or “CN2.” CN2 provides the global coverage, network technology infrastructure and management capabilities required for MNCs to successfully leverage China in their growth strategy. It’s an advanced communication and information network for the future.

Technology for the Next Generation
NOCs in Shanghai and Beijing equipped with service-aware management tools provide automated provisioning, proactive problem identification and resolution, network and application performance management, service level management and real-time reporting.

CN2 moves China Telecom from a traditional network carrier to a comprehensive integrated information service provider and reinforces its position as an ally to multinational businesses doing business throughout Asia.

A multi-billion dollar investment, CN2 was built from the ground up. It is an IPv6-capable backbone network leveraging new softswitches (the control layer) and protocols like DiffServ and MPLS, which boosts performance of its bearer layer. With five classes of service and QoS, CN2 guarantees reliability and performance of mission-critical and high-priority applications. The MPLS-optimized architecture also enables Frame Relay and ATM traffic to be transported over a Layer 2 VPN, ensuring support for both legacy traffic and new IP services over a single IP/MPLS network. This promotes network efficiency and scalability in order to satisfy the growing demand for IP services.

CN2 enables China Telecom and its subsidiaries to continue to support its legacy services while moving forward with cost effective new offering such as:

  • high-performing global VPNs such as IP/VPNs or Ethernet VPN;
  • converged services offering communications from anywhere to any device (combined voice, data and video services);
  • high-quality IP voice;
  • video streaming and other advanced broadband applications;
  • 3G mobile applications.

Pervasive Network Coverage
After nearly three years of tests and trials, the network began its commercial roll-out in mid-2005, beginning in China with core nodes in seven cities, aggregate nodes in 22 cities, edge nodes in 165 cities with direct coverage to 194 cities with the ability to extend further through ChinaNet. CN2’s Global Points of Presence (POPs) are located in New York, Los Angeles, San Jose, Washington DC, Frankfurt, Hong Kong, Beijing, Shanghai, Guangzhou, Singapore, London, Seoul and Tokyo. Connecting to ChinaNet’s over 35 million registered customers, CN2 reaches more subscribers in Asia than any other network, and provides direct connections to all major global ISPs for direct traffic routing. As an ultra long-haul Dense Wavelength Division Multiplexing (DWDM) network, CN2 provides better transit and minimizes signal delays.

Smart Operations Support System
Many global carriers struggle with the fact that their Network Operations Centers (NOCs) were built before the entire IT paradigm shifted – before real-time, distributed, mission-critical applications were running over the Internet and certainly before classes of service needed to be managed like applications. How can a company offer industry leading Service Level Agreements for multiple services without the tools to assure that they can be met?

China Telecom’s network investment has been matched by an equally powerful Operations Support Systems (OSS) infrastructure called China Telecom Global Support Center. NOCs in Shanghai and Beijing equipped with service-aware management tools provide automated provisioning, proactive problem identification and resolution, network and application performance management, service level management and real-time reporting. These OSS tools provide China Telecom’s global clients and carrier partners visibility into CN2’s performance. When distributed, composite applications experience performance problems, quickly identifying and isolating the root cause of the problem to the network, ERP system, middleware, database, J2EE application or even the mainframe becomes essential. CN2’s management tools empower Operations Support experts to rapidly rule out whether or not the problem is caused by the network.

CN2’s Benefits to Clients and Affiliates
While leveraging the assets that already exist on ChinaNet, CN2 offers a business class alternative that enables applications and communication services in Asia and beyond to perform at unprecedented levels. CN2 takes into account:

  • The need for immense scalability (of users, network capacity, thousands of interconnections, domains and IP addresses, etc.);
  • The need for application specific SLAs;
  • The growing global dependence on Internet based distributed, composite, mission critical applications;
  • Security as required by government regulations and today’s security best practices;
  • Support for alternate devices and converged media such as voice, data and video;
  • The need to find and fix performance bottlenecks quickly.

Corporate and Public Sector Organizations
Corporations and Public Sector Organizations will realize many benefits from CN2, including:

  • Improved performance of all networked applications;
  • Broader range of services available;
  • Greater flexibility in service choices;
  • Cost effectiveness – more services available through one investment;
  • Ability to store information centrally on the network, which means that they can obtain it from many points, rather than have to transfer data among devices;
  • Reliable management capabilities.

Communications Providers and Managed Services Providers
Communication and Managed Service Providers which have had a long history of collaboration with China Telecom are offered the following with CN2:

  • Best of breed services to offer to their clients either under the China Telecom brand or privately labeled;
  • Ability to generate new revenue streams from innovative, customizable service offerings;
  • Opportunity for easier and cheaper entry into the Asian market by working with China Telecom and its subsidiaries;
  • Availability of carrier-class multi-service IP networks and service driven switching;
  • Superior customer support by leveraging CT’s investment in OSS, making service fulfillment and service support available in real-time.

Summary
China Telecom’s CN2 initiative set out to leapfrog current technology and Internet service offerings in order to enable the growth of the Chinese economy and to remain the Internet service provider of choice serving China and the rest of the world. CN2 is not merely an enhancement or network upgrade. It represents a network and corporate transformation and one that will benefit the region, MNCs and carriers doing business in China for years to come.