How can operators break the curse of the “scissors gap” between volume and revenue?

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The "Economic Operation of the Communications Industry in November 2016" recently released by the Ministry of Industry and Information Technology shows that the average mobile Internet access traffic per household increased month by month in 2016, reaching 976M in November, a year-on-year increase of 101.1%, and the monthly average per household increased by 44.8M compared with October. In November, the mobile Internet access traffic reached 1.02 billion GB, continuing to rise. From January to November, the cumulative amount reached 8.21 billion GB, a year-on-year increase of 124.1%.

The “scissors gap” is becoming more prominent

Although the traffic volume has grown explosively, it is still difficult to hide the embarrassment of telecom operators' "increase in volume but not in revenue". From January to November, the total volume of telecom business reached 3204.1 billion yuan, a year-on-year increase of 53.0%; the telecom business revenue reached 1097.1 billion yuan, a year-on-year increase of 5.6%. By comparison, the difference in volume and revenue growth is as high as 47.4 percentage points, which is 1.2 percentage points higher than the difference in volume and revenue growth from January to October. At the 2017 work conference of the Ministry of Industry and Information Technology, the Ministry of Industry and Information Technology stated that "the total volume of telecom business and business revenue increased by 53% and 5.1% respectively in 2016", and the difference in volume and revenue growth reached 47.9 percentage points. In fact, looking at the economic operation of the communications industry in the second half of the year, it can be seen that the "scissors gap" between volume and revenue continues to increase (as shown in the figure).

In the past two years, telecom operators have reduced their traffic charges again and again. On the one hand, this is to respond to the country's requirement of "speeding up and reducing fees". On the other hand, in the context of serious homogeneity of telecom services and intensified market competition, operators have used "price reduction" as a "killer weapon" to increase the stickiness of existing users and develop new users. In this way, blind price reduction without business innovation has made the situation of "increasing volume but not revenue" even more severe.

In addition, as state-owned enterprises, the three major operators also bear the heavy responsibility of "maintaining and increasing the value of state-owned assets." Faced with the background of the continuous decline in the growth driven by traffic, operators have proposed their own transformation plans and are constantly innovating in traffic innovation.

For example, China Unicom and Tencent jointly launched the "Tencent King Card", which provides targeted traffic discounts for Tencent's applications. In addition, China Unicom and Alipay announced a strategic partnership to jointly launch the mobile phone number brand "Ant Treasure Card".

In its Transformation and Upgrading Strategy 3.0 released in mid-2016, China Telecom proposed the development goal of "becoming a leading integrated intelligent information service operator", and pointed out at its 2017 work conference that it was necessary to deepen reform and innovation to inject impetus into the company's transformation and development.

China Mobile has proposed the "big connection" strategy, and its cooperation with Alibaba has also been interpreted by the industry as an important part of helping the implementation of the "big connection" strategy.

There is still a long way to go to narrow the “scissors gap”

2017 is a critical year for the three major telecom operators to verify their various strategic plans. For the three major operators, there is still a long way to go to innovate traffic management and effectively narrow the "scissors gap" between volume and revenue.

Liang Zhanghua, a research expert at the China Academy of Information and Communications Technology, told the Communications World All-Media reporter that in order to narrow the "scissors gap" between volume and revenue growth, operators can establish differentiated advantages in content resource control through investment and cooperation.

Liang Zhanghua analyzed that the operators should first strengthen content cooperation and promote the application of IPTV licenses. They should attach great importance to and accelerate the cooperation with integrated broadcast and control licensees at the group level, make good layout at the video business content level, and strive to form differentiated advantages. At the same time, they should accelerate the application of IPTV licenses to make up for the shortcomings in live broadcasting.

Second, it can explore development models such as self-made content through corresponding subsidiaries. Operators have a huge user base, so it is feasible to establish an open and profitable UGC production and sharing model. In addition, it can also bring continuous revenue to the company's video business by promoting the evolution of self-made content towards professionalization, live broadcasting, and socialization.

Third, provincial branches of operators can try to introduce local content. Local content is very attractive to regional users, and introducing local content can be an important starting point for provincial operators to develop video services.

In addition, Liang Zhanghua pointed out that operators should further strengthen cooperation with Internet companies in digital life. my country's Internet industry is highly developed, and it is difficult for operators to follow KDDI's example and "take over the entire digital life of users."

However, recent landmark events such as China Unicom signing strategic cooperation agreements with BAT and China Mobile establishing strategic cooperation with Alibaba have provided new ideas for my country's telecommunications industry to promote the transformation of traffic services. Operators can explore ways of sharing and resource cooperation with Internet companies, and then cooperate closely in the product/service field to serve users in all aspects of life more deeply. On this basis, it will promote the improvement of traffic business operation level and increase user stickiness, and better realize the service value of operators.