Will 5G mobile phones and package fees become cheaper and cheaper?

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1China has the largest 5G user group in the world, and Shanghai has the largest 5G user group in the country.

2At present, the price of 5G packages of China's three major telecom operators is temporarily stable at more than 100 yuan/month, which is much lower than that of developed countries such as Europe, the United States, Japan and South Korea. For operators, 5G messages, video ringtones... In addition to packages, there is a trillion-dollar market.

With over 600,000 base stations and over 160 million 5G connected users, China already has the world's largest 5G network and the largest 5G user base. Shanghai's 5G construction scale ranks first in the country and the world. By the end of August this year, the number of 5G package users in Shanghai reached 6.17 million, ranking first in the country.

The question that follows is: Will the largest-scale 5G network drive China to become the world's largest, most creative and competitive 5G consumer market?

The answer is yes. In the 5G era, China's catch-up will be comprehensive, not only in technology, ecology, and applications, but also in the consumer end. 5G consumption will play the most important incremental role in the development of information consumption, and it is also the key to narrowing the gap in per capita information consumption between my country and developed countries abroad.

The driving force behind 5G consumption comes from known quantities, such as 5G mobile phone and package consumption, on the one hand, and unknown variables, such as 5G pan-intelligent terminal consumption and the development of 5G consumer applications, on the other hand, which provide great room for imagination.

01 5G hardware market, a riot of colour is the beginning of spring

Mobile phones are the preferred carrier for most people to access 5G, which makes 5G mobile phones effortlessly become the first object of 5G consumption. At the same time, new 5G terminals such as smart watches, bracelets, VR, smart glasses and even self-driving cars bring greater imagination to the 5G hardware consumer market.

5G mobile phones will be widely popularized next year

After Apple iPhone 12 was officially launched, all mainstream mobile phone manufacturers in the world have turned on 5G mode, and 5G mobile phones are becoming the undisputed main force in the 5G consumer market.

Photography/Feng Chengjie

China has the world's most mature, efficient and largest mobile terminal R&D and manufacturing industry chain, and is also the largest consumer market for 5G mobile phones.

According to data from the China Academy of Information and Communications Technology, in September 2020, the domestic market shipped 13.99 million 5G mobile phones, accounting for 60% of mobile phone shipments in the same period; 26 new 5G models were launched, accounting for 44.8% of the number of new mobile phone models launched in the same period. In Shanghai, the number is even higher. A salesperson at the Huawei flagship store on Nanjing East Road told reporters: "Of course choose 5G! Most people will buy 5G phones."

Image source: China Academy of Information and Communications Technology

In the Chinese market, domestic mobile phone brands are the absolute driving force of 5G consumption, with a market share of over 92%. Huawei, Xiaomi, OPPO, and vivo have already released 5G mobile phones in almost all price ranges. Recently, with the hot pre-sales of Huawei and Apple's new phones, the 5G replacement wave is expected to promote the upgrade of smartphone consumption.

The report "Chinese Smartphone Brands Conquer the World" released by SPDB International predicts that global shipments of 5G smartphones by Chinese brands will reach 159 million units in 2020, and will reach 346 million and 509 million units in 2021 and 2022 respectively. This figure means that starting in the coming 2021, 5G mobile phones will be fully popularized, and after the inventory of 4G terminals is exhausted, the vast majority of new buyers will choose 5G mobile phones.

The pan terminal becomes the X variable

For new 5G terminals such as wearables and VR, they are not new entrants into the market. They have been dormant for some time, patiently waiting for the opportunity to become popular overnight.

In Shanghai, more and more VR experience stores are popping up on the streets, with racing, shooting, and 4D movies flourishing. But this does not mean that Shanghai consumers will immediately accept it. The initiative of 5G consumption will always be in the hands of consumers who vote based on experience.

According to the KPMG 2020 Technology Industry Innovation report, as the COVID-19 pandemic ushered in a new era of remote work and remote consumer interaction, the market has once again turned its attention to virtual reality. All companies have increased their investment in VR, but no one expected that the weapon in the hands of gamers is showing its charm faster in the enterprise market.

Research and analysis firm IDC predicted in its "VR Industry Research White Paper" that the commercial VR market will continue to grow in the next few years. By 2024, the scale of China's commercial VR market will reach 92.18 billion, about 3.8 times that of 2020. Education, retail, manufacturing, construction and service industries will become the main forces in the VR market.

Image source: IDC

Wearable devices and smart watches are the entrance to the potential massive 5G market.

IDC's "China Wearable Device Market Quarterly Tracking Report for the Second Quarter" shows that in the second quarter of 2020, China's basic wearable device (wearable devices that do not support third-party applications) shipments were 22.24 million units, a year-on-year increase of 6.1%, and smart wearable device shipments were 4.35 million units, a year-on-year decrease of 4.9%. It is not difficult to find from the data that the differences in the definition of smart wearable devices still influence the market, and the wearable market has not yet entered the relatively more expensive 5G era, which also affects its potential in the 5G consumer market.

Image source: IDC

In the future, only a flourishing terminal ecosystem can support a broader 5G consumer market. More types of 5G hardware also mean more types of compatible applications and ecosystems. 5G hardware is still the cornerstone of 5G consumption.

02 Data consumption: Two flowers blooming inside and outside the package

Traffic consumption is an unavoidable topic in the development of 5G. Buying a 5G mobile phone and signing up for a 5G package are the basics of 5G life. When hundreds of millions of users have completed 5G migration and started using 5G packages, where will the new growth in 5G consumption come from?

“Smooth transition” 5G package

Will 5G package prices increase? Of course not.

Wen Ku, spokesman of the Ministry of Industry and Information Technology and director of the Information and Communications Development Department, said earlier this year that the construction of 5G networks will continue to be accelerated, and telecom operators will be encouraged to boost 5G consumption by optimizing package settings to gradually reduce traffic charges and purchase phones on credit.

The Ministry of Industry and Information Technology has made it clear that it will continue to promote the reduction of package data charges and thereby boost the 5G consumer market. At present, the 5G package prices of China's three major telecom operators are temporarily stable at more than 100 yuan/month. In the business hall of a telecom operator in Shanghai, a staff member told reporters affirmatively: "The lowest 5G package is 129 yuan, there is no cheaper."

However, the overall 5G charges are still showing a gradual downward trend. For mature home users, the cost of upgrading to a 5G package is as low as a few yuan to a dozen yuan, or even a free and smooth transition to 5G.

In addition, the three major telecom operators have also added a large number of applications to their 5G packages, which in turn saves consumers money on Internet life expenses. At present, China's 5G tariffs are at a medium-low level among 5G tariffs in various countries around the world, far lower than those in developed countries such as Europe, the United States, Japan and South Korea. Objectively speaking, 5G packages will not increase the consumption burden of communication users.

Fu Liang, a senior telecom analyst, believes that 5G packages are still in a transition period, and operators may launch a more flexible new price service system in the fourth quarter, "including both high-priced 5G packages and low-priced versions, and use this to attract more users."

In the future, operators still need to rely on time and a large user base to gradually reduce the cost pressure brought by 5G network investment, but in the long run, the tariff system of 5G packages will not be more expensive than the 4G era, at least in terms of price. It is worth mentioning that the price layout of telecom operators is more flexible across the country, and the 5G tariffs in some inland areas will fall faster than those in Beijing, Shanghai, Guangzhou and Shenzhen.

Trillion-dollar market outside the package

Data shows that by the end of September, China Mobile's 5G package users reached 113.592 million, and China Telecom's was 64.8 million. Although China Unicom has not yet announced the number of 5G package users, the industry generally believes that its 5G package users may be slightly lower than China Telecom. Roughly estimated, the number of 5G package users in China has exceeded 200 million.

How to increase the ARPU value (average monthly revenue) of each 5G user is the same question facing the three major operators. However, there is no room for increase in basic package and traffic charges, and "non-basic package" revenue has become a blue ocean for operators' revenue diversification and innovation.

At present, telecom operators have several options in their sights, such as 5G messaging, video ringback tone, etc. Among them, video ringback tone is an upgraded version of ringback tone more than ten years ago, and this business has made operators earn a lot of money.

5G messaging is seen as the 5G form of SMS. After 2015, due to the popularity of mobile social tools such as WeChat, SMS was once relegated to the "cold palace". However, with the rise of industry applications, SMS business has become popular again since 2018, reaching 750 billion messages that year alone, more than 90% of which were industry SMS, which has greatly strengthened the industry's confidence in the application of 5G messaging in the industry end.

Du Chengxin, general manager of the 5G message operation department of China Telecom's value-added service center, believes that 5G messages have three major prospects in the future. First, it may become China's largest AI intelligent application field; second, it may become the most convenient intelligent search service platform; third, it may become the richest digital and information consumption platform. "The three major operators have built a 40 billion scale of traditional industry SMS business in 10 years, and 5G messages may bring business opportunities of hundreds of billions of revenue. In the next decade, when terminals are popularized and AI matures, it will be a trillion-level opportunity for the ecological chain."

Reporter's Notes: The "Fourth Consumer Era" will arrive overnight

In "The Fourth Consumer Age" written by Japanese writer Hidetoshi Miura, consumption upgrades are clearly divided into eras: in the first consumer era, commercial forms began to take shape, and department stores emerged in big cities; in the second consumer era, there was a clear division of labor among the manufacturing, channel and brand ends, and a large number of shopping malls and supermarkets were scrambling to grab land; in the third consumer era, with individuals as the unit, consumption became service-oriented, convenience stores emerged (including take-out), and some brands became high-end; in the fourth consumer era, consumer segmentation emerged, consumption returned to rationality (returning to basics, high-quality consumer demand), and new channels emerged.

Undoubtedly, 5G consumption belongs to the "fourth consumption era", but when will a new consumption era in which consumption returns to rationality and simplicity really come? How far is a consumption capital like Shanghai from the "fourth consumption era"?

Perhaps the opportunity lies in the market growth and unknown possibilities of "non-mobile phones" and "non-packages". In the 3G and 4G eras, the industry has never successfully predicted the precedent of new killer applications. The "dark horses" eventually shined in the trend of the times and were thoroughly integrated into daily life. Where is the "dark horse" of 5G consumption hidden? We don't know.

But it doesn’t matter, just like you never know when your baby’s first milk tooth will grow, and you never know when the autumn leaves will turn golden overnight, the changes happen inadvertently, but they are definitely faster, more sudden, and more delightful than you expected.