Net profit increased by 10%: How did China Unicom achieve its goal of implementing three strategies?

2020 is a challenging year, and it has not been easy for operators. Wang Xiaochu, Chairman and CEO of China Unicom, admitted that the 2020 epidemic brought certain challenges to the company's operations, especially in terms of business expansion, new user development, 5G construction and bad debt risks. However, the epidemic has accelerated the transformation and upgrading needs of the digital economy, and also brought new business opportunities to China Unicom.

China Unicom's 2020 full-year results announced on the Hong Kong Stock Exchange show that China Unicom achieved service revenue of 275.8 billion yuan during the reporting period, up 4.3% year-on-year; net profit reached 12.5 billion yuan, up 10.3% year-on-year. From reversal to leading, the wonderful drama staged again further demonstrates China Unicom's innovation.

The three axe methods of increasing revenue and reducing expenditure are in place

The financial report shows that China Unicom's total capital expenditure in 2020 was 67.6 billion yuan, lower than the 70 billion yuan expected at the beginning of the year, and free cash flow remained strong, reaching 37.9 billion yuan, up about 43.56% year-on-year. This is closely related to China Unicom's "three-pronged" strategy of co-construction and sharing, precise investment and value management.

Co-construction and sharing, advancing in depth. Wang Xiaochu said that the company invested about 34 billion yuan in 5G capital expenditure in 2020, and completed the construction and sharing of about 300,000 new 5G base stations with China Telecom, bringing the total scale of 5G base stations to 380,000, achieving the first time in history that the coverage scale is basically equivalent to that of the leading operators. Co-construction and sharing has saved more than 76 billion yuan in network construction costs for both companies, significantly reduced network operating costs, and greatly shortened the network construction cycle.

In fact, not only 5G construction, China Unicom and China Telecom are accelerating their cooperation in co-construction and sharing. In terms of 4G network, 170,000 new 4G shared base stations were added, saving a total of 9 billion yuan in investment, and increasing efforts to explore and promote a 4G network in rural areas and indoor areas.

In terms of basic resources, the two sides have jointly built and shared more than 7,000 kilometers of backbone optical cables, 41,000 kilometers of pole lines, and 21,000 kilometers of pipelines. The two sides have saved a total of 2.2 billion yuan in investment and promoted the joint construction, sharing and maintenance of transmission resources such as pole lines and pipelines.

Network and industry collaboration, precise investment. The financial report shows that in 2020, China Unicom strengthened network and industry collaboration in capital expenditure, kept up with market demand, and made dynamic and precise investments. In 2020, of China Unicom's 67.6 billion yuan in expenditure, mobile networks, fixed-line broadband and data infrastructure, transmission networks and others accounted for 56%, 29% and 15% respectively, effectively supporting business transformation and achieving significant results.

In terms of 5G/4G/transmission/infrastructure, we will strengthen co-construction and sharing and optimize and share existing resources; reduce the frequency of 2G/3G networks, reduce network operation costs, and re-cultivate spectrum resources; accelerate the SDN, NFV, cloud and intelligentization of networks. IP backbone, smart metropolitan area and OTN have basically achieved 100% SDN, and 5G core network has achieved 100% NFV. In terms of fixed-line broadband, gigabit access is the focus, the north will maintain its lead, and the south will increase its scale and utilization rate through social cooperation.

It is worth noting that China Unicom expects capital expenditure to be 70 billion in 2021, of which 5G expenditure is about 35 billion, accounting for 70%. In terms of expenditure, China Unicom will continue this strategy, and the proportions of mobile network, fixed broadband and data infrastructure, transmission network and others will continue to be optimized to 57%, 29% and 14% respectively.

In terms of cost control, China Unicom effectively controls marketing expenses and promotes value-added operations.

The financial report shows that China Unicom's sales expenses in 2020 were only 30.461 billion yuan, a year-on-year decrease of 9.2%; this was mainly due to China Unicom's close attention to efficiency and value allocation of resources, self-discipline and rational regulation of competition; strengthening digital transformation, and integrated online and offline development; using big data analysis to enable precise marketing and stock retention; promoting the scale development of platform-based cross-industry cooperation; and creating a high-traffic APP to continuously improve digital customer acquisition capabilities.

In terms of employee salaries and benefits, China Unicom's expenses increased significantly to 55.74 billion yuan, a year-on-year increase of 10.3%, mainly due to the company's continued promotion of incentive mechanism reform, strengthening the linkage between incentives and performance, and increasing the introduction of innovative talents. In addition, China Unicom also uses AI technology to achieve intelligent monitoring inspection, fault handling, base station and IDC energy saving, saving more than 200 million yuan in costs in 2020.

Business is stable and progressing, 5G spending will decline in 2023

The financial report shows that in 2020, China Unicom's innovative fixed-line business flourished, and its mobile business momentum also turned from negative to positive.

China Unicom's fixed-line broadband access revenue increased by 2.4% year-on-year to RMB 42.6 billion in 2020. The number of fixed-line broadband users increased by 2.62 million, reaching a total of 86.1 million. The penetration rate of converged services among fixed-line broadband users reached 64%, an increase of 5 percentage points year-on-year.

In 2020, China Unicom's independent capabilities have steadily improved, and the foundation for the development of innovative businesses has been continuously consolidated. During the year, the revenue of industrial Internet business increased by 30.0% year-on-year to RMB 42.7 billion, and the proportion of overall service revenue increased to 15.5%. Among them, the revenue of ICT business was RMB 13.4 billion, a year-on-year increase of 33.4%; the revenue of IDC and cloud computing business reached RMB 23.4 billion, a year-on-year increase of 26.1%; the revenue of Internet of Things business and big data business reached RMB 4.2 billion and RMB 1.7 billion, respectively, a year-on-year increase of 39.0% and 39.8%, respectively. Driven by the good growth of innovative business and fixed-line broadband business, China Unicom's fixed-line service revenue reached RMB 116.9 billion, a year-on-year increase of 10.6%.

It is worth emphasizing that China Unicom's mobile business development momentum continued to be released in 2020, and mobile service revenue and user ARPU have both increased month-on-month for three consecutive quarters. In 2020, China Unicom's mobile service revenue reached 156.7 billion yuan, turning from negative to positive year-on-year; mobile user ARPU reached 42.1 yuan, up 4.1% year-on-year; total mobile Internet traffic increased by 16.5%, and the average monthly data traffic of mobile users reached about 9.7GB.

At an industry briefing, Wang Xiaochu said that as of the end of last year, the ARPU of 5G users was around 70 yuan. It is expected that with the increase in new users, the ARPU value of 5G will decline slightly in the future. However, it is certain that the overall ARPU value of users switching from 3G and 4G to 5G users will increase by more than 10% next year.

2020 is the first year of large-scale development of 5G. China Unicom seizes the opportunity and integrates value management and service experience throughout to promote the scale development of 5G business. During the year, China Unicom's 5G package users reached 70.83 million, and the penetration rate of 5G package users reached 23%, higher than the industry average of 20%.

As 5G network coverage is further improved, application scenarios represented by VR/AR games and high-definition 4K/8K videos are constantly optimized, and terminal penetration continues to increase, China Unicom will strive to promote the continued rapid increase in 5G users and effectively drive the sustained and healthy development of mobile business.

When talking about the future investment trend of 5G, Wang Xiaochu said that the investment will basically maintain about 70 billion yuan from 2020 to 2022, of which 5G investment will account for about 35 billion yuan. After three years, 5G investment will begin to decline. Unless 5G traffic finds a new breakthrough point and triggers a rapid increase in 5G traffic, then timely adjustments will be made.

"We hope to quickly promote 5G applications through 5G construction, mainly in the field of industrial Internet. We have gradually developed our own products in six industries, including medical care, education, etc., which has led to a 63% increase in cloud revenue. In addition, in the 5G public market, in addition to normal traffic supply, it has gradually formed a wide range of applications."