After running blindly, how much money did operators make from 5G?

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Recently, China Mobile and China Unicom have announced that they have completed their annual 5G construction goals ahead of schedule. According to data from the Ministry of Industry and Information Technology, my country has built and opened more than 600,000 5G base stations and the number of 5G terminal connections has exceeded 150 million.

While 5G construction is in full swing, some experts have pointed out that my country's current 5G development still has problems in user experience, business closed loop and other aspects, which has sparked widespread discussion.

From the perspective of operators, it has been nearly a year since 5G packages were commercially available. How much revenue has 5G contributed to operators?

5G construction sparks controversy again, MIIT sets tone for moderate advancement

Previously, Lou Jiwei, former Minister of Finance, stated at a seminar of the China Economic 50 Forum that 5G construction is somewhat ahead of its time, that existing 5G technology is very immature, that hundreds of billions of dollars of investment have been made, and that operating costs are extremely high. It is difficult to find application scenarios, and it will be difficult to absorb the costs in the future.

At the recent China International Information and Communication Exhibition, Ding Yun, president of Huawei's Carrier BG, also mentioned the current "fake, dumb, and poor" problems of 5G. Currently, there are over 100 million 5G users in China, but many users have bought 5G packages but are not using 5G phones; users with 5G phones may not be in areas with 5G coverage. Overall, the matching degree of "machine", "network", and "package" is still not high.

This has once again sparked discussion on the pace of 5G construction in the country.

Since the issuance of 5G licenses in June 2019, driven by new infrastructure and other related policies, the three major operators have accelerated their pace in 5G construction. According to financial reports, the total capital expenditure of the three operators on 5G this year will exceed 180 billion yuan.

With large investments, high operating costs, and unclear application scenarios, is the progress of 5G construction too fast? Not only relevant experts, but even some netizens have begun to have doubts.

A user who is using a 5G package told Sina Technology that in some emergency scenarios, the experience of downloading software on the 5G network is indeed much better than that on the 4G network; but he did not feel the online video viewing experience advertised by the operator. He mostly watches online videos through the mobile network in subway scenes, but the 5G network coverage of the Beijing subway is not good at present.

Recently, Wen Ku, director of the Information and Communications Development Department of the Ministry of Industry and Information Technology, pointed out that my country will still be in the introduction period of 5G development in the next three years. We must adhere to a moderately advanced construction rhythm and strive to form a good 5G development model of "construction to promote use".

What is the introduction period? It means that 5G development is still in its early stages and it will take some time to enter the growth period, which is also the period of demand explosion. This means that at the level of the Ministry of Industry and Information Technology, the overall tone is to maintain the current 5G construction rhythm, waiting for the explosion of 5G applications and commercialization.

Liu Liehong, Vice Minister of the Ministry of Industry and Information Technology, also made suggestions on the development of 5G. He believes that 5G technology and products need to be continuously improved and matured in practice, and cannot be achieved overnight. The development of 2C services in 5G applications is progressing steadily, but 2B and 2G services are still in the early stages of development. There is no ready-made experience to follow, and it takes time to explore and practice. We should look at it objectively and rationally.

He emphasized that we should also look at 5G construction and development comprehensively. The initial investment in 5G network construction is large, but 5G has strong penetration and a wide range of radiation. It is a powerful tool to promote digital transformation and cultivate new momentum for economic development.

Regarding the cost of 5G construction, Wu Hequan, an academician of the Chinese Academy of Engineering, pointed out that taking into account the construction, operation and maintenance of macro and dense micro base stations, the comprehensive cost of 5G is 4 to 5 times that of 4G, but the operating income will exceed 6 times that of 4G. It can be considered that the return on investment of 5G will be better than that of 4G, or at least equivalent, and there will be no situation where the investment cannot be recovered.

Gan Bin, vice president of Huawei's wireless product line, said in an interview with Sina Technology that in terms of 2C, the penetration rate may reach 15-20% by the end of this year or early next year, and the 2C explosion point will also be ushered in. "If we look at 5G from the current perspective, there may not be such a great need; but from the perspective of the future, the requirements for communication technology are endless." Gan Bin said that the development of communication technology requires the network to come first, and only when the network has the ability can services continue to emerge.

5G packages have been commercially available for nearly a year. How much do operators realize from the C-end?

From the perspective of economic and social development, in the long run, the investment and return of 5G construction are undoubtedly balanced. But from the perspective of operators themselves, the situation may be slightly different.

In recent years, with the subsequent impact of speed increase and fee reduction, the disappearance of user dividends, and the intensification of market competition, the three major operators have fallen into an embarrassing situation of increasing volume but not increasing revenue. The high initial investment and construction costs of 5G, which cannot be recovered in the short term, pose a considerable challenge to the financial situation of operators.

On October 30, 2019, the three major operators jointly announced the commercial use of 5G packages. Now that it has been nearly a year, have the operators made any money from 5G?

From the perspective of China Mobile, the number of its 5G package users in the third quarter of this year has reached 114 million, while the figure was 70 million in the first half of the year; the number of mobile users has slightly decreased from 947 million in the first half of the year to 946 million in the third quarter, which means that its 5G user penetration rate currently exceeds 12%.

However, it is worth noting that China Mobile's average monthly revenue per user (ARPU) fell from 50.3 yuan in the first half of the year to 48.9 yuan, a year-on-year decrease of 2.6%, but the decline has narrowed. In other words, although China Mobile's 5G package users have grown rapidly, it has not yet contributed enough revenue to stop its ARPU from falling and rising.

This may also be related to China Mobile's aggressive strategy in developing 5G packages. Some users have reported that they were upgraded to 5G packages; some even said that although they upgraded to 5G packages, their phones were still 4G phones.

However, in the long run, migrating 4G users to 5G is an inevitable process. At the same time, there are many ways to increase user ARPU in this process.

A user of China Mobile's 5G package told Sina Technology that he did not upgrade to a 5G package because he needed a 5G network. He explained that he originally used China Mobile's 88 yuan per month 4G package, but he also had to apply for China Unicom's broadband service. Now, he has directly upgraded to China Mobile's 158 yuan per month 5G package. Not only has the mobile data in the monthly package been upgraded from 20G to 60G, but China Mobile also gave away broadband services. "In this way, the monthly cost of mobile phone + broadband is about the same, but the mobile data has increased a lot," he said.

In this way, although the user's monthly fee has not increased, for China Mobile, it has not only allowed the user to upgrade from 4G to 5G, but also poached a broadband user from China Unicom, which is killing two birds with one stone.

From the perspective of China Telecom, in the first half of this year, its 5G package users reached 37.84 million (increased to 57.14 million in August), and the penetration rate reached 11% (increased to over 16% in August). Although the total number of 5G package users is lower than that of China Mobile, the penetration rate of 5G package users has exceeded that of China Mobile.

In addition, according to the data released in China Telecom's semi-annual report, the ARPU of its 5G package users was 80.6 yuan, and the ARPU of users upgrading from 4G to 5G increased by about 10%; from the perspective of China Telecom's mobile ARPU in the first half of the year, it was 44.4 yuan, an increase from the second half of 2019, reversing the previous downward trend, which also means that the value enhancement of 5G has initially emerged.

As for China Unicom, it is relatively cautious in promoting 5G packages. As of the third quarter of this year, China Unicom has not yet released data on 5G package users.

Overall, China Unicom has adopted a strategy of sacrificing user growth in exchange for profits. This is also reflected in the financial data so far this year. In terms of the growth rate of net profit, China Unicom has maintained a leading position among the three operators. In addition, China Unicom's mobile billing user ARPU in the first three quarters of this year increased by 2.6% year-on-year to 41.6 yuan.

The commercialization prospects of the B-side are broad, but the implementation has just begun

While the three major operators are promoting 4G users to upgrade to 5G, they are also vigorously trying to commercialize 5G in the industry.

China Unicom believes that in the medium and long term, there is huge room for growth in 5G government and enterprise application revenue. According to the data released in its semi-annual report, China Unicom has built multiple 5G lighthouse projects in the fields of industrial Internet, smart cities, medical health, transportation and logistics, new media, energy, mining, etc. In the first half of the year, it has successfully expanded 162 5G lighthouse customers, completed 92 commercial contracts and 70 demonstration projects.

Zhao Dachun, deputy general manager of China Mobile, recently stated that China Mobile continues to promote the development of 5G and accelerate the integration of 5G into thousands of industries. It has created 100 benchmarks for 5G industry applications involving various industries, and has the ability to promote large-scale commercial use of 5G vertical industry applications in 15 sub-sectors, such as 5G vehicle-road collaboration, 5G+high-end manufacturing, 5G+smart logistics, etc.

Zhao Dachun revealed that in 15 sub-sectors, China Mobile's 5G commercial cases have reached 2,000, with contract amounts reaching billions.

As for China Telecom, according to the data released in its semi-annual report, there are more than 1,100 industry benchmark projects covering eight major fields and accumulating more than 300 application scenarios.

But judging from the current implementation of 5G on the B-side, commercialization has just begun.

Ding Yun, President of Huawei's Carrier BG, believes that in order to serve a wide range of industries, operators must have an in-depth understanding of the industry, as different industries have different specific needs for 5G. Therefore, in order to develop 5G industry applications, it is necessary to clarify the boundaries of capabilities, consolidate the foundation of capabilities to serve a wide range of industries, implement a replicable business model, and actively promote ecological construction, especially the development of the application ecosystem.

In terms of business model, in July this year, China Mobile released three major systems of 5G private network products, technologies and operations, including the three modes of 5G private network "premium, exclusive and premium"; in August this year, China Unicom also released three 5G private network products and two 5G private line products. This has great positive significance for the implementation of 5G in vertical industries.

Of course, the commercialization of 5G on the B-side will be more complicated than on the C-side. The needs of B-side users are more fragmented and customized, and the service capabilities and experience of operators on the B-side need to be further improved; more importantly, this cannot be accomplished by the power of operators alone, but requires the entire industry to jointly build a complete ecosystem and business closed loop.

6G research and development has started, and 5G experience will be an important foundation

Judging from the current moderately advanced pace of 5G construction and the commercialization process of operators on the C-end and B-end, input and output have undoubtedly not yet achieved a positive cycle.

However, a communications industry insider pointed out that such a moderately advanced pace is necessary from the perspective of the current development of the domestic communications industry. On the one hand, China has experienced the stages of lagging behind in 2G, catching up with 3G, and synchronizing with 4G, and finally has a slight lead in the 5G era; on the other hand, the development experience of 5G will also provide a foundation for the research and development and construction of 6G, which needs to solve the pain points faced by 5G.

"Although the outside world believes that China is in a leading position in 5G globally, in fact, China lags behind in technologies such as millimeter wave," he said.

In February this year, the International Telecommunication Union announced the launch of 6G research work; and in November 2019, my country took the lead in launching 6G technology research and development work.

Duan Xiaodong, deputy director of China Mobile Research Institute, recently talked about 6G research and said that according to the rule of pre-research and development of mobile communication networks, 3GPP is expected to start formulating 6G standards in 2025, but 2025 is only five years away, and the innovation cycle is very short. "Many people say that after calling for 5G, they are calling for 6G again. It's really not too early, and the time window is very tight."

Huang Yuhong, deputy director of China Mobile Research Institute, also pointed out at a 6G seminar that after China's 5G leadership, the expectation for 6G is excellence. She believes that the next two to three years will be a window period for defining the 6G vision and requirements and researching the end-to-end potential enabling technologies of 6G.

"It is hoped that my country can have original innovations based on theoretical breakthroughs in 6G, that the industry will no longer be troubled by shortcomings, and that applications can move from being integrated into thousands of industries to allowing information infrastructure to grow together with society," said Huang Yuhong.

There is no doubt that if China wants to continue to lead in 6G research and construction, the pioneering exploration and experience in 5G is undoubtedly an important step.