Year-end review: Communications industry in 2021

Hello everyone, I am Xiaozaojun.

The short vacation is over, and what lies before us is the brand new and unknown 2022.

Looking back on the past year, we can't help but sigh that time has passed too quickly.

At the beginning of last year, we were still grateful that the epidemic had eased and were ready to work hard to make up for the time and losses.

As a result, the epidemic situation in various places has repeatedly occurred throughout 2021, which has once again wasted everyone's precious time. To this day, places such as Xi'an and Ningbo are still in a fierce battle with the epidemic.

During the Spring Festival, many people are unable to go home for reunion.

Let's not go too far, let's get back to the topic of communications. In today's article, Xiaozaojun wants to give you a review of the communications industry in 2021, take stock of the achievements we have made, analyze the problems we are facing, judge the future development trends, and look for new opportunities.

Looking at the development of the domestic communications industry in 2021, if I were to describe it in one sentence, it would be - "facing as if facing a lake, and the heart as if shocked by thunder."

To the outside world, the communications industry has indeed been calm and uneventful over the past year. Something seems to have happened, but nothing seems to have happened. The hustle and bustle of 5G has fallen silent, and 6G is too far away. People have poured all their enthusiasm into the Metaverse.

But in fact, the communications industry is tense and undercurrents are surging. A new round of reshuffle has begun. The entire industry landscape is quietly changing.

Reconstruction of the industrial chain under international competition

Let’s start with the macro level.

The global macro-political and economic situation is the main factor affecting the development of the industry. The comprehensive competition and game between China and the United States is particularly fierce in the field of information and communications.

In the eyes of most people, the competition between China and the United States is mainly manifested in the sanctions against Huawei and the suppression of the key chip industry chain. In fact, in many invisible areas, the struggle is going on.

Before the competition started, after decades of reform and opening up, China had already been integrated into the global industrial chain system, forming a mutually integrated relationship with the outside world. With this relationship, we have achieved good development.

Today, in order to curb our development, our opponents have activated various offensive restrictive measures.

From the overall situation, we are at the downstream of the product chain, and our competitors are trying every means to suppress us upstream, hoping to destroy our product chain. But at the same time, our competitors themselves do not have a complete industrial chain, and hope to support other downstream companies to maintain product manufacturing output.

However, they found that finding a perfect alternative to China's industrial chain is not an easy task either.

As a result, the current situation has emerged, with each company looking for replacements for the missing links in the industrial chain.

We need to be aware that we are still at a slight disadvantage. The links in the industrial chain controlled by our competitors have higher technical barriers and deep-rooted layouts, making it more difficult to replace them.

Chips are a typical example. As the core component of information and communication technology and the main carrier of computing power, we cannot develop the digital economy and 5G without chips. Mobile Internet, Internet of Things, and Internet of Vehicles consume chips every day. Therefore, we are desperately trying to make up for the lessons of chips, hoping to turn the situation around.

In fact, we are being strangled in many hardware and software. Domestic substitution represented by Xinchuang is to solve the stranglehold problem.

Domestic substitution is an inevitable trend in the development of domestic information and communications, and also an important business opportunity. Taking the opportunity to fill the missing domestic industrial chain is of far-reaching significance to China's economic security. Many domestic companies will benefit from it.

Trade friction and the resulting restructuring of the industrial chain are both challenges and opportunities. It is correct to view it from a long-term perspective.

5G Now and in the Future

5G is a key topic in the communications industry.

In 2021, the speed and scale of China's 5G network construction will continue to lead the world. According to the latest data, the total number of 5G base stations in China has reached 1.4 million, accounting for more than 70% of the world's total. The number of 5G mobile phone terminal connections in China has exceeded 500 million, far exceeding the rest.

The results are impressive, but we should also note that C-end users do not have a high degree of recognition of 5G. Although there are many 5G connections, they are basically passive connections and are not completely driven by user demand.

Let’s take a look at the situation of 5G 2B.

2021 is a critical year for the development of 5G 2B. In order to promote the development of 5G 2B, the Ministry of Industry and Information Technology has also launched the "5G Sailing" plan.

According to data, more than 20 industries across the country have conducted 5G technology verification and commercial pilots, and more than 10,000 innovative projects have been implemented in multiple industries. Operators have at least 15,000 5G 2B commercial contracts.

Overall, this is not a bad result. Benchmarks for various industries have been set.

The main problem now is mass replication. How to convert benchmark projects that are implemented with key resources into experience and replicate them to other companies at low cost is the key to the next step of 5G 2B development and the key to the success or failure of 5G.

The establishment of Huawei's various industry teams and the expansion of operators' 5G industry landing teams have demonstrated their respective emphasis on the private network market. This is a tough nut to crack and a protracted battle.

From a technological perspective, the pace of 5G development and evolution has not stopped.

In 2022, R16 will be fully commercialized, which means that the existing 5G network will be further upgraded. R17 is just around the corner, and R18 is in full swing. It is worth paying close attention to what 5G-Advanced will bring us.

In addition to the 700M frequency band of radio and television, the construction of 5G networks in the domestic conventional frequency band may enter a new stage, and the large-scale construction of 5G base stations may be relaxed. Millimeter wave 5G will be unveiled in the Winter Olympics. Its specific performance may affect the domestic attitude and policy towards millimeter waves.

The construction of 5G bearer networks will continue. As the number of 5G users increases, the expansion of bearer channels is inevitable.

In terms of optical modules, the industry's forecast is relatively optimistic, believing that 400G will continue to explode, and 800G will explode in 2023. I personally feel that the cost of high-speed optical modules has not yet reached expectations. In addition to data centers, whether operators are willing to use them in large quantities in backbone networks is a question worth observing.

For the core network, the main task in 2022 is the construction of the 2/3/4/5G converged core network. After the converged core network is established, the old platform will be retired, further improving the utilization efficiency of network equipment and reducing energy consumption and operation and maintenance costs.

Gigabit optical network accelerates deployment

In addition to 5G, we should also pay attention to F5G and gigabit optical networks.

From a certain perspective, the development of optical infrastructure networks is more important than 5G. After all, the reliability and performance of wired scenarios are unmatched by wireless scenarios. Without optical infrastructure, 5G is out of the question.

At present, gigabit cities and gigabit homes are being built on a large scale in China.

According to the latest data, the number of 10G-PON (10G passive optical network) ports supporting gigabit access in China exceeds 6 million, with the ability to cover more than 240 million households. The number of gigabit users has increased to 25.25 million, a net increase of 18.85 million households from the end of 2020.

This is a proud statistic. Just last month, Xiaozaojun's home officially joined the ranks of gigabit homes.

Now, equipment manufacturers and operators are stepping up the promotion of FTTR fiber-to-the-home. That is to say, on the basis of fiber-to-the-home, the indoor twisted pair network needs to be replaced with optical fiber to achieve fiber-optic coverage throughout the house.

The cost is relatively high, and it remains to be seen whether ordinary families can afford it.

I personally feel that compared to whole-house fiber optic cables, targeted upgrades to home Wi-Fi routers, the use of higher-quality products to replace hundred-yuan machines, and the popularization of Wi-Fi 6 will actually be more cost-effective and will bring more obvious improvements in user experience.

IDC's Gains and Losses

In addition to communication networks, operators and equipment manufacturers will focus more on the IT field, that is, computing power. The most prominent representative is the IDC data center.

According to statistics, 150,000 new cabinets are added to data centers around the world each year. This shows the surging development momentum of cloud computing. The demands of enterprise and consumer users for application services, data, and computing power are all reflected in the surge in the number of IDCs.

In the information and digital age, IDC is a computing resource pool that provides computing energy and power to the entire society.

However, the surge in IDCs has brought about a serious problem, which is energy consumption.

According to estimates, electricity costs account for more than 50% of IDC costs. This means that from the moment an IDC is built, it becomes a money-burning machine and a machine that continuously emits carbon. If we cannot ensure that the benefits it brings outweigh the costs, it will be a disaster.

The biggest difference between new infrastructure and old infrastructure is that the cost investment life cycle of new infrastructure is shorter and the depreciation is faster.

Based on Moore's Law (although it is not so accurate now), the cost of new infrastructure equipment and facilities is decreasing year by year. That is, for the same IDC, there will be obvious differences in cost and performance if it is built next year or this year.

IDC is not suitable for advanced construction or excessive construction. If it is not based on real needs, all the smart XX systems we build are just burning money.

While we continue to accumulate computing power, we need to take into account the national strategy of "dual carbon (carbon neutrality and carbon peak)" and not fall into the trap of resource consumption. We cannot ignore the waste of OPEX in order to stimulate the economy and rescue enterprises with CAPEX.

Effectively reducing the energy consumption of IDC, including the energy consumption of equipment cooling, is of great research value. The replacement of traditional air cooling with liquid cooling is a significant trend.

5G also has the problem of excessive energy consumption. Whether the 1.4 million 5G base stations can play their value and whether their energy consumption can be further reduced is an important topic worth studying.

Speaking of IDC, it is also worth noting that Huawei's withdrawal from the x86 server field has led to a certain degree of market share vacuum, which will soon be filled by manufacturers such as Inspur and ZTE. I believe it will bring some boost to the performance of manufacturers.

The development pattern of operators

On January 6, 2021, the United States announced that it would push for the delisting of China's three major operators from the New York Stock Exchange. After half a year of appeals and rejections, the three major operators have successively launched the "return to A-shares".

China Telecom, which returned first, experienced the embarrassing situation of falling below the issue price. Now that China Mobile’s A-share listing is imminent, it is worth paying attention to whether it will also fall below the issue price.

In the past few years, the merger of China Telecom and China Unicom has not happened. According to the current situation, the probability of a merger in 2022 is not very high. The competition pattern of the three major operators is actually very reasonable. One more is too much, and one less is too little.

Many people are concerned about the participation of the Radio and Television Bureau. I still believe that the entry of the Radio and Television Bureau will not have a big impact on the overall domestic telecommunications industry. Due to insufficient funds, the Radio and Television Bureau has repeatedly delayed the 5G centralized procurement this year. This operator has a lot of problems in terms of funds, talents and management. In fact, participating in 5G is a waste of resources and does not make much sense.

The purpose of the joint construction and sharing between China Telecom and China Unicom is to save resources, but the entry of radio and television has increased the waste of resources. The end of this "setting up positions for people" approach is already inevitable. It is highly likely that China Mobile will eventually absorb it.

In fact, instead of supporting radio and television, it would be better to set up a lightweight private operator, which may serve as a catfish to stir up the dull telecommunications market.

Cat.1 (Internet of Things) is a good time

Speaking of catfish, who is the biggest catfish in the communications industry this year?

It is Cat.1.

Just as the entire industry continues to promote IoT technologies such as NB-IoT and 5G, Cat.1 stands out and becomes the biggest dark horse in 2021.

The rapid development of Cat.1 in low- and medium-speed IoT scenarios has brought people surprise. Indeed, for billions or tens of billions of IoT terminals, cost is always the first factor. Cat.1 relies on the cost advantage of 4G LTE networks, laying the foundation for its success. This is a typical case of success in the sinking market.

The establishment of the 6:3:1 pattern in the IoT market has pointed out the direction for development in the next decade. This is a good thing, and the clear direction has given the entire industry chain a reassurance.

The industry chain can make targeted investments based on this goal. As time goes by, the commercial costs (chips, modules, terminals) of various mainstream technologies (NB, Cat.1, Cat.4, 5G) will further decline, forming a positive cycle.

Once the terminal problem is solved, the difficulty of implementing industry Internet application scenarios will be reduced by half. Operators, manufacturers and customers can focus more on the network and cloud, study the construction plan of private networks, study cloud-network integration, and study edge computing and cloud native.

Protection of software ecosystem

Regarding industry-specific networks, I am actually more worried about soft power.

In an era where software is king, we are far behind our competitors in industrial operating systems, middleware and application software. The core of the problem is that we have not yet formed effective protection for intellectual property rights.

Software is very particular about ecology. Even Huawei and Alibaba cannot handle all software work alone.

The key to the ecosystem lies in small and medium-sized enterprises. Without perfect intellectual property protection, small and medium-sized enterprises dare not invest in software, we cannot form a vigorous ecosystem, and industry digitalization cannot generate demand, stimulate investment and development like mobile phone apps.

Especially for the industrial Internet, it is impossible to succeed if we only rely on hardware without continuous investment in industrial software. With so many industrial categories, we need a large number of small and medium-sized enterprises that are serious about doing practical things to participate in ecological construction and jointly build a prosperous industry application.

Future Focus of Communication Technology

From a technical perspective, the most noteworthy areas of future communications development are the introduction of AI, the development of native security technology, smart metasurfaces, and space-air integration. I personally am not optimistic about 5G messaging and terahertz, which are of great concern to everyone.

The combination of AI and traditional communication scenarios is an important direction for future communication research. For example, AI optimizes air interface algorithms and manages automated operation and maintenance. It may combine trained algorithm models to further improve communication performance, or it may reduce the difficulty of network operation and maintenance, reduce dependence on manual labor, and cut costs.

Space-air integration, to put it simply, means satellites. The large-scale popularization of low-orbit satellites will realize the Gbps era of satellite communications. The substantial increase in bandwidth may change the service model of satellite communications and form a new industry.

During the flood in Henan in the middle of the year, the satellite + Wing Loong UAV model was actually verifying the business model. It is impossible to completely replace cellular mobile communications, but it will be a very useful supplement in many scenarios (aviation and navigation communications, emergency rescue, and broadband coverage in remote areas).

Conclusion

According to recent feedback from operators' employees in various regions, the overall situation of operators' year-end bonuses in 2021 is good. Under the huge pressure of operating performance and the background of increasingly fierce competition in the C-end stock market, this situation is rare.

Judging from the financial reports, the operators' 5G 2B and cloud revenues have begun to increase, and the ARPU value of 5G C-end users is higher, and the revenue will also increase. In other words, the operators have entered a growth cycle and the short-term situation is optimistic.

As for equipment manufacturers, Huawei's expected performance in 2021 is 634 billion, a year-on-year decrease of 30%. In comparison, the performance of its competitors will surely increase significantly. However, some are happy while others are sad. Some of its competitors are also having a miserable time.

It is hoped that operators can release more profits in centralized procurement bidding, so that mid- and downstream manufacturers can live with more dignity and respect.

2021 is the worst year in the past decade and the best year in the next decade. Changes in the macroeconomic situation and demographic trends are bound to affect all industries, including the communications industry. Faced with the severe situation, every communications company and every communications person must be prepared to respond.

Well, that’s all for today’s article. In the new year, I wish everyone can find their goals and achieve better development. Thank you!