Videoconferencing Takes Hold in China

SUMMARY

Available in both English and Chinese languages, this report details the economic and cultural conditions that have led to China being an early adopter of visual communications solutions. Twenty-one vendors (14 of whom are China-based) are analyzed, along with the state of the current market for conferencing products, a description of the major IP network investments being made by the major carriers, and a five-year forecast based on technology and business trends in mainland China.

Overview

This report examines the rich media conferencing industry in China and focuses specifically on the video and web conferencing equipment market that includes videoconferencing endpoints and MCUs as well as web conferencing clients and servers. Included in this report is an overview of the market segments within the rich media conferencing industry, an analysis of the current state of the market, a review of the underlying technologies, background and analysis of 21 vendors active in China, a comprehensive product matrix for each supplier across all product types, and a detailed five-year forecast for mainland China (not including Taiwan or Hong Kong).

Before reviewing our findings on China, it may be useful to summarize the overall state of the conferencing and collaboration industry. Traditionally voice has run over PSTN, video over dedicated networks, and data over IP networks; for today's organization's IP is the network of convergence the backbone for audio, video, and data alike. Wainhouse Research believes the industry is entering the third phase of this evolution, as shown in the flow chart below.

This transition has been accompanied by the following trends starting in earnest in 2000, both in China and worldwide.

1) During this transition customers will need to be able to connect different users over different networks running different protocols, and to manage the move from legacy networks to converged networks and enhanced services gradually. Vendors must support these market needs. IP is just another protocol, another network, and most users couldn't care less about protocols and network transports. Instead, users will care about advanced functions and features that are made possible by converging multiple media types and multiple applications on a single network infrastructure.

2) The influence of IM and the introduction of web conferencing for commercial use are becoming more important. The Chinese version of this application set includes VoIP and desktop videoconferencing integrated with graphical content at the desktop. Most include streaming servers allowing users to participate without the need for any special equipment other than a web browser and an Internet connection. Web conferences can be launched via either a buddy list or a URL, enabling ad hoc conferencing with colleagues, customers, and suppliers. Important functional improvements include increased QoS and additional features to enable attendee interaction through sub-conferences, text chat, polls & tests, and "follow-me" web browsing.

3) A shift from centrally managed, scheduled, and monitored audio and/or video bridging services to automated, self-service features and functions. The costly, slow, and awkward manual process of scheduling and securing infrastructure resources (and conference rooms), inviting meeting attendees, and managing the conference itself, is moving from the hands of dedicated staff and trained operators into the hands of the real users. Conferencing has become ad-hoc. Users can do it when and where they want, and can choose from operator-assisted to un-assisted, and from on-demand to scheduled and reserved meeting formats. Web-based tools put this power into the hands of the user, and infrastructure product vendors have responded with equipment that can be driven by web-based software and thatcan adapt its capacity as conditions require.

Key Findings

The timing and emphasis of the trends listed above have been affected by both the timing of China's economic development and local cultural and business practices. The key findings summarized below are explored in more detail within the report:

1) China is at the cutting edge of Visual IP Communications:

China's first IP Video network was implemented in Northeastern China in 1998. This provincial segment of the national video communications network being implemented by the Ministry of Post and

Telecommunications was likely the earliest, and certainly the largest, implementation outside a lab at that time. In 2002, China Unicom deployed the UniVideo network which reaches over 300 cities in China and supports more than 3000 simultaneous video calls the new "Worlds Largest IP Videoconferencing Network." This type of service is pushing the envelope in terms of interoperability, connectivity, and network architecture. Turning to the desktop, voice and video over IP are key selling features of web conferencing applications, whereas in other markets, these features are still optional add-ons.

2) China's is becoming one of the world's largest markets for Visual IP Communications equipment. In addition to the support of the major service providers, the industry has been encouraged by the government as tool for increasing efficiency and reducing costs, creating an environment for overall market growth that outpaces world wide growth. As shown in the table below, China revenues for infrastructure products, specifically video MCUs, gatekeepers, gateways, and conferencing servers, grew 27% compared to 13% worldwide. Endpoint revenue growth in China was dramatic at 84% compared to worldwide growth of 5%. The size of the market combined with rapid growth has made China one of the largest country markets for videoconferencing equipment in the world accounting for over 10% ofworldwide infrastructure revenues and more than 15% of endpoint revenues in 2003.

3) China is starting to become a driver for new trends in Visual IP Communications

The rapid growth of the market has fostered the growth of dozens of domestic Chinese companies focused on Visual IP Communications (12 of which are profiled in detail in this report). Domestic companies in tune with the local market needs are providing creative solutions for video display, streaming, and quality. Companies all over the world are taking Chinese market requirements, from a Chinese language user interface to Chinese ADSL access standards, seriously enough to introduce them into their mainline products. Asian manufacturers in Korea and Taiwan are increasingly viewing China as an important international market and launching pad for their products on the international market. Finally, companies like Aethra, Sony, and VTEL have opened Chinese manufacturing facilities whichassemble models that fit local requirements (without ISDN interfaces, fir example).

Methodology

Wainhouse Research monitors the entire rich media conferencing market through its consulting, seminar, and Summit activities, as well as by maintaining continuous contacts with the vendor and end user communities. In order to assess the current state of the market and to ground the forecast figures of this report in reality, we also interviewed and collected data from over twenty suppliers.

Our data collection process maps supplier unit and revenue shipments into four product categories:

1) Video MCUs : Hardware multipoint control units that enable multipoint video calls over IP and switched networks. Audio only bridges for IP or PSTN networks are NOT included in this report.

2) Web Conferencing Servers: Server software and/or hardware enabling web-based collaboration for data conferencing and remote presentations.

3) Group Conferencing Endpoints: Client software and/or hardware located at user sites which captures and transmits audio and video data in a group setting.

4) Personal Conferencing Endpoints: Client software and/or hardware located at user sites which captures and transmits audio and video data for a single person. These can include PC desktop endpoints and videophones. This category does NOT include videophones for the PSTN network.

Vendors Covered in this Report

Wainhouse Research has done extensive research on the conferencing equipment suppliers and their products. Each supplier is treated separately with a product review and company analysis. The following companies are reviewed in detail.

• Aethra
• DST
• DVISION
• FVC
• Huawei
• Polycom
• PowerInfo
• Radfort
• RADVISION
• Sony
• SuZhou KeDa
• TANDBERG
• UIC
• V2
• VCON
• ViCall
• ViewTran
• VisionNex
• VTEL
• ZOOM
• ZTE

Forecast Summary

Our overall results suggest that the Chinese video & web conferencing equipment market will grow from over $90 million in 2003 to over $500 million in 2008, resulting in a compound annual growth rate just shy of 30%.

However, trends in the rich media conferencing industry as a whole will dramatically change the shape of the industry over the forecast period. Whereas infrastructure equipment accounted for almost 40% of supplier revenues in 2002, driven by the large infrastructure investments made by service providers and national organizations, we believe that this segment will account for a decreasing slice the much larger total conferencing revenue pie. The video industry's dominance by the stand-alone MCU business will change as MCU ports decline in price, as videoconferencing is utilized for smaller, ad hoc meetings, and as endpoints with embedded MCUs begin to erode the strength of the stand-alone market share. In addition, we believe that personal videoconferencing endpoints, which accountedfor negligible revenues in 2003, will grow match group system revenues by the end of the forecast period. Complete forecast details including specific market segment sizes, growth rates, and significant segment metrics where applicable can be found in chapter 5 of this report.

TABLE OF CONTENTS

List of Figures

List of Tables

Chapter 1. Executive Summary

• Overview
• Key Findings
• Methodology
• Vendors Covered in this Report
• Forecast Summary

Chapter 2. Market Segments & Technology Overview

• Product & Service Market Segments
• Technology Overview

Chapter 3. Market Dynamics in China

• Top 10 Developments of 2002 - 2003
• Defining Trends

Chapter 4. Vendor Overviews

• Aethra S.p.A
• DST Software Technology Company
• DVISION Technology
• First Virtual Communications
• Huawei Technologies Company
• Polycom
• PowerInfo Company
• Radfort Information Technology Company
• RADVISION
• Sony
• SuZhou KeDa Communication Technology Development Co
• TANDBERG
• Uniform Industrial Corporation
• V2 Technology
• VCON
• ViCALL
• Viewtran Technology
• VisionNex Technologies, Ltd
• VTEL Products Corporation
• ZOOM Video Communications Co
• ZTE Corporation

Chapter 5. Market Forecast

• Definitions
• Assumptions
• Video Network Infrastructure Equipment
• Enterprise Group Endpoints
• Enterprise Personal Conferencing
• Video & Web Conferencing Market Summary
• Appendix A: Product Matrices
• Network Infrastructure Equipment
• Videoconferencing Endpoints

List of Figures

• Figure 1 Overall Market Summary
• Figure 2 Summary of the Video & Web Conferencing Equipment Market by Segment
• Figure 3 Overview of Market Structure
• Figure 4 Match the Media to the Message
• Figure 5 Web conferencing and PSTN architecture
• Figure 6 Functions of a Gateway
• Figure 7 TCP/IP and ISO Seven-Layer Stack
• Figure 8 Three tools for network quality of service
• Figure 9 Network address translation
• Figure 10 Number of Chinese Vendors in each Market Segment from 1985-2002
• Figure 11 Videoconferencing Equipment Revenues by Sector
• Figure 12 Steep Growth in Broadband Access
• Figure 13 Average per Capita Income from 1990 to 2003
• Figure 14 Market Share by Origin 2002 & 2003
• Figure 15 Market Share by Revenue Category 2002 & 2003
• Figure 1 Video MCU Revenue Forecast
• Figure 2 MCU Unit Sales Forecast
• Figure 3 Web Conferencing Server Revenue & License Forecast
• Figure 4 Network Infrastructure Forecast Summary
• Figure 5 Enterprise Group Revenue Forecast
• Figure 6 Enterprise Group Units Forecast
• Figure 7 Enterprise Personal Endpoint (HW) Revenue Forecast
• Figure 8 Enterprise Personal Endpoint (HW) Unit Sales Forecast
• Figure 9 Enterprise Personal Endpoint (SW) Forecast
• Figure 10 Equipment Revenue Market Segments by Percentage
• Figure 11 Summary Video & Web Conferencing Equipment Revenues

List of Tables

• Table 1 China vs. Worldwide Market Revenes 2002-2003
• Table 2 China's Post-Monopoly Telecommunications Landscape
• Table 3 MCU Market Forecast for China
• Table 4 Web Conferencing Server Market Forecast
• Table 5 Network Infrastructure Forecast Summary
• Table 6 Enterprise Group Endpoint Forecast
• Table 7 Enterprise Personal Endpoint (HW) Market Forecast
• Table 8 Enterprise Personal Endpoint (SW) Forecast
• Table 9 Summary Video & Web Conferencing Equipment Revenues