5G investment steadily declines: CAPEX spending of the three major operators collectively "shifts"

For a long time, when operators release financial reports, the industry pays more attention to how the operators spend money in the new year in addition to paying attention to how they performed in the past year.

As the three major operators have successively released their 2021 annual results, this year's capital expenditure situation has also surfaced. From the disclosed information, the three major operators have stated that they will increase capital expenditures, but one detail is that 5G-related investments will decline.

So, with 5G investment decreasing and total capital expenditure increasing, where will operators focus their investment this year?

5G investment continues to decline steadily

China Telecom expects capital expenditures to reach 93 billion yuan in 2022, of which 5G network investment accounts for 36.6%, reaching 34 billion yuan, a year-on-year decrease of 10.5%. Li Zhengmao, general manager of China Telecom, said at the performance briefing that it is expected that 5G construction in the next 1-2 years will be mainly used to improve network coverage and capacity expansion, and the scale of 5G investment will be stable and declining compared with recent years. At the same time, in the future, we will strive to improve investment efficiency, and the proportion of capital expenditure to revenue will continue to decrease.

China Mobile expects capital expenditures of 185.2 billion yuan in 2022, of which 5G-related capital expenditures are about 110 billion yuan, a year-on-year decrease of 3.5%. Yang Jie, chairman of China Mobile, said at the performance briefing that 2020-2022 is the peak period of 5G investment and construction, and 2022 is the last year of the company's 5G investment peak. Starting from 2023, if there are no other major events, capital expenditures will show a gradual downward trend. It is expected that in three years, the proportion of capital expenditures to revenue will be reduced to less than 20%.

Although China Unicom has not announced specific figures for capital expenditures in 2022, given the joint construction and sharing with China Telecom, the pace of 5G-related investment should also be on a downward trend. Wang Junzhi, deputy secretary of the Party Committee of China Unicom, said at the performance briefing: "Unicom plans to complete the scale construction of 5G networks in about three years, and overall capital expenditures will remain stable in the next few years."

What is clear is that 5G-related capital expenditures directly determine the coverage of 5G networks and user experience. In the past two years, my country has adhered to the principle of moderately advanced construction to build 5G networks. As of the end of 2021, my country has built and opened more than 1.425 million 5G base stations, achieving continuous coverage of urban areas and townships across the country, as well as effective coverage of key areas, developed rural areas, and key property locations.

The goal set by the Ministry of Industry and Information Technology this year is to strive to open more than 2 million 5G base stations in total to lay a solid foundation. Judging from the 5G base station construction goals announced by the three major operators, it is expected that more than 670,000 base stations will be newly built this year, and more than 2.09 million base stations will be opened in total, which can exceed the goal.

Therefore, it is logical to appropriately reduce 5G-related capital expenditures without violating the principle of moderately advanced construction. In addition, operator executives also stated that we are currently at the peak of 5G deployment, which means that capital expenditures will steadily decline. More importantly, operators can invest the saved funds in the current hot digital economy to find new growth points. Of course, there is also investment in technological innovation to increase core competitiveness.

Of course, the reduction in 5G investment does not mean that operators do not attach importance to the development of 5G. High-quality 5G networks are still the basic foundation for the current business development of operators. Especially after nearly two or three years of 5G layout, the income per unit of traffic revenue has re-entered the upward channel, and the mobile ARPU values ​​of the three major operators have increased, achieving an increase in user scale and user value.

Focus on new growth points of digital economy

As mentioned above, the current digital economy is developing rapidly and has huge market potential. Relevant data show that the scale of the digital economy will reach 60 trillion yuan in 2025, accounting for more than 50% of GDP; the space for customer digital transformation will reach 15.5 trillion yuan, with an average annual growth rate of 28%.

As builders and operators of information and communication infrastructure, operators have inherent cloud and network resources, which can better support the digital transformation of customers in various industries and play a leading role in the construction of "network power, digital China, and smart society". This has also contributed to the "transformation" of the capital expenditures of the three major operators.

China Telecom Chairman Ke Ruiwen said at the performance briefing that China Telecom will make precise investments in 2022 and focus on new growth points. The main focus is to strengthen investment in industrial digitalization, which is expected to be 27.9 billion yuan, a year-on-year increase of 62%. Among them, IDC is expected to invest 6.5 billion yuan, with a target of adding 45,000 racks, 14 billion yuan in computing power, and plans to add 160,000 cloud servers. Of course, the investment in cloud and IDC is also to better serve "East Data West Computing". Looking ahead to the next three years, China Telecom strives to achieve a revenue ratio of more than 30% from industrial digitalization.

In 2022, China Mobile will invest 48 billion yuan in computing power networks to support the development of its digital transformation-related businesses, implement the national "East Data West Computing" project deployment, and put into production a total of about 450,000 IDC racks available to the public (with a plan to add 43,000 racks); accelerate the layout of hotspot center clouds, build edge clouds on demand, and put into production a total of more than 660,000 cloud servers (with a plan to add 180,000 racks). Yang Jie said that the computing power network will be fully constructed in 2022, and the capital expenditure related to the computing power network will gradually increase in the future.

China Unicom is guided by the action plan for building a new type of digital information infrastructure, building innovative products with core competitiveness, network and industry collaboration, and precise investment. The increased investment in transmission network and infrastructure is mainly to meet the capacity layout of data centers, and the investment in East-West computing network is moderately increased; the increased investment in broadband and data is mainly used to accelerate the deployment of broadband gigabit networks and the construction of high-quality government and enterprise networks.

It is not difficult to find that in the future, the three major operators will increase investment in digital economy-related businesses, and cloud and IDC will become the focus of attention. On the one hand, it is to comply with the development strategy of "East Data West Computing", and on the other hand, it is to continue to expand cloud infrastructure and product capabilities.

At present, digital transformation has become a "compulsory course" for the future survival of enterprises, and more and more enterprises and governments are actively embracing cloud computing. In 2021, relying on the "cloud-network-edge-end" integrated infrastructure and strong network security capabilities, as well as the identity of central enterprises as a national team, the public cloud services of the three major operators have achieved rapid growth, opening up new growth space for operators.

Therefore, it is imperative and necessary for the three major operators to expand their investment in cloud computing, especially today when the focus of competition in the cloud computing field has shifted to comprehensive cloud platform capabilities. Operators need to continuously improve their competitiveness in core technologies, products, services, etc. in order to remain invincible. Whether it is architecture, products or services, there is real investment behind them.