From comfort zone to challenge zone, operators enter a period of deep adjustment

Data released by the Ministry of Industry and Information Technology and the three major operators show that the operators' operating income has maintained a positive growth trend. Under the complex and changing macroeconomic situation and external environment, the operators have overcome various difficulties and achieved such results, which is certainly worthy of praise. While we raise our hands to praise, we should also be aware that the operators have entered a period of deep adjustment.

1. The traditional business structure is difficult to support new revenue growth

After experiencing rapid growth, the trend of SMS business increasing volume but not revenue began to become apparent starting from 2019, and showed a clear trend of no revenue growth in 2020. This is another traditional business of operators entering its sunset period after voice.

In the revenue structure of operators, although the combined share of voice and SMS business revenue is less than 20%, in the mobile Internet era, when the growth of traffic revenue is restricted, which business can make up for the reduction in revenue scale caused by voice and SMS business? This is a problem that operators must solve.

Although there is still growth in traffic business and traffic revenue has begun to grow positively under the strong intervention and promotion of regulators, the traffic business volume has entered a slow growth period after a period of rapid growth. After the unit price of traffic has lost its growth channel, the growth of traffic revenue will no longer be possible at a high speed.

Even if these problems faced by mobile communications cannot fully reflect all the problems encountered by operators, they can objectively illustrate the severity of the problems. In the field of fixed communications, the scale of broadband users has maintained a relatively high growth rate after breaking the national household limit, but the growth of broadband revenue alone is not obvious.

Operators have done a lot to promote the extension of the traditional business value chain, but the results have not yet been fully demonstrated. In the extension of business with home broadband as the entrance, except for broadband TV, other smart home products have not seen the explosive growth advocated by various businesses.

In the revenue structure of operators, new businesses such as big data and cloud computing have grown rapidly, but due to their relatively small scale, they cannot be compared with the revenue scale generated by traffic, voice and broadband businesses. Although everyone is optimistic about the development trend of operators' new businesses, it is still unknown whether they can surpass BATJ.

2. How to increase motivation for change after getting used to winning easily

According to the forecast of authoritative organizations, the overall business revenue scale of operators is expected to grow from the current 1.3 trillion to 1.5 trillion by 2025, of which the incremental amount will be only 200 billion, and it will need to be distributed through competition among the four major operators including China Radio and Television, resulting in limited growth space for operators.

According to conservative estimates by authoritative organizations, Internet business revenue is expected to grow from the current trillion to about 3.5 trillion by 2025, with nearly 2 trillion of incremental space. This is also an important reason why operators urgently need to transform into the Internet industry.

In fact, since the early days of the 4G era, operators have been transforming towards the Internet, which is actually the transformation from voice to traffic management as we all know. The problem is that during the transformation process, operators have only completed the transformation to traffic pipes and have not achieved the transformation to traffic content.

Starting from the most familiar entrance is a common habit for everyone, including operators. In fact, it is precisely because of this habit that operators have fully realized the business transformation from voice to traffic pipelines. In the early days of 4G, the unit price of traffic was high and the business volume grew rapidly, so the pressure on operators to transform to traffic content was not urgent.

After getting used to enjoying policy dividends or barrier advantages, although the operators have made N changes between 2013 and 2020, apart from changes such as patching up the pipelines, such as expanding and then reducing business halls, and changing business hall signboards every one year or even half a year, we have not seen any structural changes.

Even though the operators are calling for reforms every day and holding meetings to study reforms, they are still just patching up the traffic pipelines. The reforms to adapt to the Internet trend are just simple mergers or reorganizations of existing business lines, or even simply changing the name as a reform achievement.

III. How can the existing organizational structure adapt to the new business development situation?

Careful operators may find that before pursuing business changes, operators first adjust the existing organizational structure, such as establishing a certain business unit or spinning off an existing department to form a branch. In addition to changing the appearance and renaming the existing business, other effects remain to be seen.

The three major operators have established terminal companies, such as China Unicom Huasheng Terminal and China Telecom Tianyi Terminal Company, which were established as early as around 2008. However, in addition to being channels and intermediaries, what achievements have these terminal companies made in improving their own R&D capabilities and sales capabilities? You can reflect or deduce.

Other organizations or institutions such as e-commerce, Internet of Things, smart home, etc. built by operators themselves are accustomed to sucking blood from traditional business companies. How long will it take or what kind of resource investment will be needed to realize their own blood-making ability? This is a strategic consideration that operators should make before adjusting their organizational structure.

If changing the name of a department or establishing a new branch or subsidiary is considered an organizational structure adjustment to adapt to the development of new business, it is a bit too hasty. For example, from office to general department, from general department to general office, and then from general office back to office, except for the name change, everything else remains the same.

4. How to compete with Huawei after being heavily dependent on it

From the financial reports released by operators, it can be seen that emerging businesses such as big data and cloud computing are growing significantly. Although such results are not enough to compete with Alibaba and Tencent, they are already good results from the perspective of operators. In fact, in addition to the gap in revenue and scale, there are more risks that deserve more attention.

As a netizen on the Communication People's Forum said, the big data and cloud computing services of operators are basically all supported by Huawei, at least this is the case with China Telecom's Tianyi Cloud. The question now is that Huawei has already laid out its plans in big data and cloud computing, so how can operators compete with Huawei's similar products?

In terms of emerging businesses, should operators build their own capabilities or follow the old custom of relying heavily on equipment vendors? If they continue to rely heavily on equipment vendors, then are the operators' businesses considered their own or are they wholesaled from equipment vendors such as Huawei? The problems seen by the operators' grassroots employees should also be clear to the top management.

Operators are developing new businesses, but in the whole chain process from planning, construction to operation, those powerful large equipment manufacturers are deeply involved in it and even play a leading role. In the subsequent competition of similar businesses, what are the positioning of operators and equipment manufacturers? These questions are worth thinking about.

5. Where will the mushrooming professional companies go?

The three major operators have established a large number of professional companies, including those targeting Internet companies and those based on the communications industry itself. Before setting up professional companies, operators should have a clear strategic positioning, whether to serve the operators themselves or to compete with other companies in the society.

As Internet giants such as BATJ have already completed their ecological layout and are building wider and deeper moats, professional operators' companies basically have no room to compete with them, or have almost no chance of winning the competition. Can the payment companies of operators beat Alipay and Financial Connect?

If the professional company is only positioned to serve the operators themselves, then wouldn't it be a bit like the three major operators building one each, similar to the previous practice of each building their own towers? More importantly, the operators themselves are limited in size, and the professional company established will find it difficult to strengthen its muscles and grow stronger without competing with external peers.

There is also a lot of debate within the operators about the development positioning of professional companies, and the operators are indeed wavering. Operators have invested huge resources in building their own capabilities, but there is actually a lot of uncertainty as to whether these costs will pay off.

Can software development be better than Huawei? Can video be better than iQiyi? Can games be better than Tencent? How can e-commerce break through Alibaba and JD.com? And Alipay is blocking the way for payment. If professional companies are limited to making money from their own people, then what is the meaning of this left-right pocket game?

Operators set up various professional companies to fully tap the value of their huge user base, but how can they monetize this huge resource? In fact, the professional companies of operators need to compete with Internet companies represented by BATJ for content. Otherwise, why would users choose the content of operators?

We are currently in the transition period from 4G to 5G. How to achieve sustained profitability of 4G and how to ensure a soft landing of 5G are issues that operators must address after entering the challenge zone. From a more macro perspective, can operators further expand their resource monetization capabilities based on their infrastructure? This should be the main task during the adjustment period.