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The LINK, Oct - Nov 2009

Zhang Weihua: Leading Shanghai Telecom’s IT Revolution

In China, owning a TV, a PC, and a mobile phone at the same time is no longer a luxury - it is a necessity. Today, if Shanghai Telecom General Manager Zhang Weihua (EMBA 1995) gets his way, Chinese consumers will soon use tools offering all three communications channels at once. As 3G technology evolves, Zhang is determined that Shanghai Telecom will lead the charge into combining TV, PC and mobile. Read on to find out how.

BY ECHO ZHOU 

Televisions, PCs and mobile phones, which have become increasingly popular in China since the 1980s and ‘90s, are now indispensible end-user digital devices, touching every aspect of modern Chinese life. Thanks to the 21st century global IT boom, Chinese users are now striving to combine the functions of all three devices through popular services such as IPTV, TV Internet Service, Mobile Internet Service, and Mobile TV. Following this trend, consumers will soon enjoy unfettered access to information - anywhere, anytime. 

From a technical perspective, the movement to combine the functions of TVs, PCs and mobile phones also marks the merging of the key businesses of a service provider - connecting the TV network, the telecommuni-cations network, and the internet. It is a concept well known to Zhang Weihua (EMBA 1995), Party Committee Secretary and General Manager of Shanghai Telecom (ST). In fact, Mr Zhang - who served as General Manager of China Telecom, Americas during the telecom giant’s U.S. entrance from 2002 to 2005 - believes telecom operators must become more versatile, offering a full-service business model. He explains how the transformation is evolving: “At present, ST has combined telecommunications and TV. The result is IPTV, which transmits TV signals through the telecommunications network. This innovation is now dubbed the “Shanghai Model,” he says. Zhang continues by explaining that ST has developed a “soft terminal” which enables users to watch IPTV not only on TVs but also on their PCs. He continues: “In addition, 3G service has inspired us to develop mobile phone TV service. If we are successful, users will be able to watch the same programmes through any of the three devices.”

Mr Zhang has even bigger dreams that will make the transition between using the three devices effortless. “Today, the devices are still used separately. My plan is to ensure that if I’m watching a TV programme in my car, I can continue watching it on the TV in my living room after I get home. If someone visits my family and is sitting in the living room, I can still keep watching the programme on the PC in my study. This is our ultimate technological goal: to allow users to watch programmes with no difficulty or disturbance. So far, the progress we have made in the lab has not been applied to the actual networks, but we will move ahead step-by-step.”

Achieving this ambitious goal will require some adjustments to the vertical industrial chain. Zhang explains: “In the past, telecommunications providers could only offer basic services. But since we are now trying to incorporate new functions into our service, we need to promote cooperation between operators and content providers.” The process will require “a complicated industrial chain” involving recording programmes, uploading them to the networks, transmitting them to end users, he explains. Says Zhang: “It will not just be a simple business transaction. We need to form strategic alliances with content providers.” This also applies to mobile phones. Any additional services, such as stock trading or phone number inquiries, requires cooperation between all companies in the industrial chain.

With Zhang Weihua at the helm, ST is now on a path toward transforming from a conventional, landline service-oriented enterprise to a comprehensive information and service provider. At present, non-telephone services account for 60 percent of the company’s total revenue, while the percentage of revenue from landline service has fallen below 35 percent. Propelled by its successful transformation, ST has emerged as a leader in the regional market, occupying the largest share of Shanghai’s telecommunications industry. ST is the only local telecommunications provider in China to have racked up such impressive achievements.

With voice-only service losing its appeal, the timely introduction of new technology has optimized ST’s business structure and propelled the company into position as regional market leader. Currently, the number of ST’s broadband users has reached 3.5 million, giving ST 85 percent of the total Shanghai market and the most broadband users in Asia. The company also boasts nearly 800,000 IPTV users - a number that should top 1 million by the end of 2009, making ST the market leader.

After obtaining its 3G license in January 2009, ST blanketed downtown Shanghai with 3G signal within three months, then extended coverage to suburban areas by last June. In Q1 of 2009 alone, ST netted 1 million CDMA users, and within the first year in this sector, ST had snapped up 10 percent of Shanghai’s mobile service market. The company has also been an aggressive player as a Fibre Optical Internet Service (FOIS) provider. Last summer, ST announced plans to become a FOIS provider within three years, providing every Chinese family with 100mbps of internet services and every building with 10 mmbps. ST aims to develop 750,000 FOIS users this year, 1.5 million next year, and 3 million in 3 years. This move will allow its users to enjoy the benefits that come with the most advanced IT technologies: high definition multi-media programmes transmitted by high-speed broadband. 

How can ST maintain its leading position during the ongoing IT technology boom? How will ST cope with the challenges brought by the introduction of 3G service? What challenges has ST overcome during its transformation, and what new challenges does the company face now? Read on for Zhang Weihua’s answers to these questions and more during an exclusive interview with TheLINK.

TheLINK: You spent three years as General Manager for China Telecom, Americas, gaining rich experience in overseas development and operation. How did this overseas stint help you lead Shanghai Telecom?
Zhang Weihua: When I returned to China in 2005 (from his posting in the U.S.), China Telecom General Manager Wang Xiaochu was pushing for the company’s strategic shift to a comprehensive information service provider. At that time, Shanghai Telecom was also facing an operational crisis because of the decline in fixed-line sector. Thanks to my three years’ overseas experience, after analyzing the shift happening in the U.S. telecom industry, I developed relevant solutions. I made a series of changes in the organizational and structure, HR management, and centred the company’s business structure around the theme of IT innovation.

TheLINK: Some analysts believe Chinese telecommunications companies still lack the expertise needed for overseas development. What’s your opinion?
Zhang: I believe the so-called “outward expansion” has two levels. You can reach the first level when your company’s service and business extend overseas, forming a global customer chain. In this sense, China Telecom (CT) has been leading the industry. After CT tasted the sweet success of development in North America, it went on to establish branches worldwide.

The second level is much higher, and is only reached when you are successful in international acquisitions and capital restructuring. In fact, because of the current global financial crisis and the bursting of the IT bubble, many international corporations are not very enthusiastic about global expansion. An enterprise has to know what “going international” really means before plunging into it, and particularly, it should never “expand for expansion’s sake.” Before you decide, you must evaluate the real gains such a move can offer; the core value it can add, and whether it can bring you the sharpest possible competitive edge. The cultivation of top-tier international talent is also extremely important, and CT has expanded its pool of overseas “intellectual reserve.” In addition, as a huge SOE, CT needs encouragement - in the form of relevant government policies - to convince its leaders to take on the risk of overseas expansion.

TheLINK: 2009 is referred to as ‘Year 1’ for 3G in China. This year, for the first time, three major mobile players emerged. In this “3G battle,” what are ST’s strengths and weaknesses?
Zhang: Mobile service is vital to ST’s “full service” role, and marked a dramatic improvement to the company because this sector is so different from fixed-line service. Entering the mobile sector required great changes in both our organization and marketing, and CT has spent a significant amount of money on promoting its “e surfing” 3G brand.

In the future, the competition in 3G service will be differentiated in product combination and business pattern innovation. For example, compared to Shanghai Mobile and Shanghai Unicom, ST’s advantage lies in its experience in the integration of fixed-line and mobile service. We combine mobile, fixed-line, and broadband service plus other value-added services.

As a newcomer to the mobile sector, our business grew very fast due to the advantage of service bundling. From January to March this year, Shanghai Telecom had netted nearly 1 million new CDMA service subscribers, a target that China Unicom had laboured more than seven years to accomplish.

We expect our business to grow very fast - our market-share in the mobile sector will increase from 10 percent now to 15-20 percent in the future. Related industries will quickly follow suit. In time, CT will produce a ‘star’ cell phone like the iPhone.

In terms of service systems, China Mobile is using domestically-developed TD-SCDMA (time division - synchronous code division multiple access), which is still under development and perfection. CT has adopted North America’s CDMA 2000, which boasts the most mature system, the quickest network construction and wireless coverage, plus good encryption techniques and less radiation. Some call it “Green 3G.” China Unicom is using WCDMA, which offers wider global roaming and stronger terminal support.

TheLINK: Several years ago, people thought China’s telecommunication sector was dominated by traditional monopolies that waited for customers to ‘knock on the door.’ How did you lead such an ‘old fashioned’ enterprise towards a modern management style?
Zhang: In terms of our organizational structure, in the past we mainly concentrated on networks and technology. Our back-end, including network construction, planning, implementation and operation, was very strong but our front-end, including marketing and customer service, was relatively weak. Therefore, over the past few years, we have focused on the transformation from back-end to front-end - adapting a more customer-oriented approach and paying more attention to marketing and sales.

To achieve this goal, we have established a professional sales team which deals directly with multinational enterprises. We have also invited international consulting companies to help us establish and train this team. Also, we have launched a customer service quality assurance department in parallel with the marketing department. This is an innovation in the telecommunication sector. Before, customer service was regarded as an auxiliary part of telecom enterprises, so customer service was always criticized by the consumers. Within a few years after this concept was implemented, we overcame our shortcomings in customer service.

TheLINK: As a global partner of the 2010 Shanghai Expo, what services will Shanghai Telecom provide and what new technologies will ST unveil at the event?
Zhang: On top of the initial investment of RMB300 million, China Telecom is continuing to invest another RMB800 million in improving the IT used at the Expo. In particular, ST will provide a full range of IT support, including information services, construction and operation services, and basic communication services.

At the Expo, we will present FTTH, IPTV, 3G Coverage, and more. We will also showcase our latest 4G wireless broadband technology at the event.