How China Telecom tie up will help MS to sell Xbox One in world’s most populous mkt

CHINA: Cesar Bachelet, Senior Analyst, Analysys Mason comments:

• China Telecom recently announced that it had formed an exclusive partnership with Microsoft to sell the Xbox One in China from September 2014. The exclusive partnership will enable China Telecom to differentiate itself while capitalising on the latent demand for games consoles, following the recent lifting of a long-term ban. It also gives the Xbox One a foothold in the world's most populous market, boosting Microsoft in its battle versus Sony's PS4

• The Xbox One could also be the cornerstone for a multimedia digital home proposition, combining China Telecom's connectivity with games, music and video. Several operators, such as US cable operator Comcast and French incumbent telco Orange, already make some of their pay-TV content available to their subscribers on Xbox consoles, thus replacing additional multi-room set-top boxes. TeliaSonera's Estonian subsidiary Elion has gone one step further, delivering its IPTV service directly to Samsung smart TVs, potentially eliminating the set-top box altogether. It is therefore not inconceivable for China Telecom to use the Xbox One as a multimedia set-top box to target some segments of its subscriber base. The operator could also potentially use the Xbox One as an entry point to target consumers outside of its coverage area through an ‘over-the-top' video service.

• However, the take-up of the Xbox One will be constrained by the limited number of people who can afford the Xbox One - even if China Telecom spreads the cost of the console by offering it as part of a subscription-based bundle with its services, the price is still likely to be too high for a significant percentage of the population. We can also expect a reaction from well-established providers of online gaming services such as Tencent. Tencent in particular, is in a good position to offer less expensive, yet high quality, alternatives by capitalising on its well-established relationship with games studios.