Alameda-based network gear maker UTStarcom (UTSI) has signed an agreement with China Telecom (CHA) to provide the latter with a complete IPTV system, the company said in a statement.

China Telecom–the nation's largest telco–plans to roll out a subscription IPTV service by the end of the year in Shanghai, the statement said. The telco will partner with local heavyweight Shanghai Media Group (SMG) to provide live events and video-on-demand programming.

No financial details were disclosed, although UTStarcom CEO Ying Wu said "we don't expect revenue associated with this agreement to be meaningful in the near term," seeing it more as a long-term proposition than quick cash.

Although China Telecom claims the upcoming launch follows a successful test in five provinces, pay cable services trialed in Shanghai earlier this year were a dismal failure, attracting only 15,000 subscribers out of a metropolitan area of approximately 15 million.

The year-end "launch" will reach an initial audience of just 5,000 viewers, UTStarcom said.

The deployment of IPTV opens a regulatory can of worms for China Telecom. Officially, audio-visual content delivered via broadcast or terrestrial cable equipment is considered a broadcast, and falls under the auspices of the State Administration of Radio, Film, and Television (SARFT), an arm of the Ministry of Propaganda. Content sent over telecom lines is not considered a broadcast, with the Ministry of Information Industry (MII) overseeing telecommunications.

If IPTV proves lucrative, SARFT and MII could drop the gloves in a battle over control of that new revenue stream.

However, content provided by IPTV will fall under the same censorship regime as free-to-air television and legitimate home video sales, raising questions about the viability of these offerings for a subscription service.

"One of the things that CT is going to learn quite quickly is there is a big difference between building a network and offering a bouquet of content and services that people want to buy," regardless of the partnership with SMG, according to David Wolf, president of Wolf Group Asia, a Beijing-based media and technology consultancy.

UTStarcom previously hit the jackpot in China by providing handsets and networking gear for "Little Smart," wireless local loop telephony which offers unlimited, flat-rate calling within one's own city. The service has proved wildly popular, with estimates ranging between 40 to 60 million subscribers, many in addition to or to the exclusion of full-service mobile phones.