HANGZHOU, China--The co-founder of a leading Chinese telecom equipment vendor is predicting that China soon will be the largest IPTV market in the world, with as many as 1 million subscribers by year’s end, because it has overcome the significant barriers to deployment of the new technology.

Ying Wu, a Bell Labs veteran who co-founded UTStarcom and is now its executive vice president and chairman/CEO of its China unit, said the regulatory and market environments in his country, along with the current state of technology, will enable the market to ramp up very quickly. UTStarcom has deployed its IPTV system with China Netcom in Harbin and with China Telecom--where it shares the set-top box part of the business with ZTE--in Shanghai.

The Harbin deployment today has 112,000 subscribers, according to David King, vice president of sales and marketing for UT Starcom, while the China Telecom deployment, which went into commercial deployment in September 2006, already has 100,000 subscribers.

“I predict China will be the largest IPTV market in the world quickly because we have overcome the five major barriers to deployment,” Yu told an assembled audience of global analyst and media attending UTStarcom’s IPTV Tour 2007 on Monday. He cited the five barriers as regulation, technology, content, infrastructure and capital.

“Regulation is not a problem with the government in China,” he said. “We have some problems with the local regulators but the good news is the government is trying to break that. We have had to overcome the resistance of the local cable operators but cable is very fragmented in China.”

Many Chinese villages have their own cable operations and there is about 2200 separate cable companies, he said. On March 19, the Chinese government ordered a separation of government functions from local cable operations.

By contrast, in countries such as Japan, where UTStarcom is providing its IPTV gear to Softbank, IPTV players are not allowed to offer unicast services, only broadcast, Yu said, eliminating the primary appeal of the service in its ability to time-shift programming to personalize the service for consumers.

On the technology front, Yu maintains UTStarcom, which began working on IPTV seven years ago and today offers an end-to-end system, has “the most mature product” available and one that solves the complex issues of scaling up complicated technology that can deliver a different video stream into each home.

The chief content issue that Yu cited is how to fund content-creation when IPTV enables customers to fast-forward through any commercials. He believes BestTV, the IPTV subsidiary of Shanghai Media Group, which is deploying UT Starcom’s IPTV technology citywide since September, has addressed that issue by targeting advertising based on user profiles.

“The problem is you do not want to watch commercials that have nothing to do with you,” Yu said. “My children are grown, so until they give me a grandson, I don’t want to watch commercials for diapers.”

China’s telecom operators also have a major advantage over the country’s cable players because they have more money and have deployed a newer infrastructure, Yu said. In markets such as the U.S.--an area on which UTStarcom is choosing not to focus--the strength of the cable TV industry has raised the bar for early IPTV deployments.

Finally, companies such as BestTV have more access to capital and therefore the means to create an attractive offer for consumers, Yu said. “We worked with BestTV so they can give the set-top box for free,” he said.

UTStarcom, which has also announced IPTV deployments in India and Brazil, differs from some other IPTV vendors is that it is offering an end-to-end solution that uses streaming servers and set-top boxes that don’t have a lot of local storage, said Qiang Li, chief scientist for UTStarcom and chief architect of the company’s RollingStream IPTV system.

One thing that approach has allowed UTStarcom to do is enable service providers to offer a basic IPTV service with monthly Average Revenue per User of as little $4 a month, with the expectation that advanced services layered on top of that basic service will create more significant income.