2G is shut down in many places. How can NB-IoT and Cat.1 seize the opportunity in the reshuffle?

It's the start of the new school year again, and universities, middle schools, and primary schools across the country have all started classes. Recently, a piece of news about a "strange" incident that a primary school student encountered at school has attracted attention:

It is reported that this watch was manufactured in April 2018, which is just over two years ago. The watch worked normally during this summer vacation, but it suddenly lost signal recently.

So, why can't the good little genius watch be used?

After some investigation, it was finally discovered that the Xiaotiancai watch was a GSM terminal that used the 2G network to make calls, and the SIM card inserted in the watch was the secondary SIM card used by her mother. Xiaotiancai's customer service said that China Unicom has shut down the 2G network in the area, so the watch can no longer make calls.

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China Unicom's network cleanup plan has a long history, and the 2G network cleanup is in progress

In fact, as early as 2018, China Unicom had already begun to promote the shutdown of 2G networks, and it is expected that all 2G networks will be shut down before 2020.

Since 2018, China Unicom branches in various regions have successively issued relevant announcements. Now, user terminals in more and more regions have no 2G network signals, which means that the 2G network has entered the stage of actual withdrawal from the planned withdrawal stage.

According to the information on the Internet, the areas where China Unicom has shut down its 2G network are:

Compiled from the Internet

In fact, regarding the withdrawal of 2G networks, the three major domestic operators have officially started the withdrawal process and have their own planned time nodes. Although there is still some time before the three major operators fully and officially shut down the network, it is worth noting that the use of 2G networks has actually begun to be restricted before the actual deactivation date.

• First, operators will stop activating new 2G devices before the network is shut down. If a device is already connected to a 2G network, it can still be used, but new devices cannot be registered.
• Second, carriers will reallocate spectrum before the network shuts down, meaning 2G-only devices may no longer work as well on the 2G frequencies they once did.

The three major operators have already cut off the addition of 2G users, so what they are facing now are the existing users of 2G networks. The terminals used by these users can be mainly divided into three categories:

• Those old 2G phones in remote areas that we know of;
• Smart wearable devices similar to Xiaotiancai watches;
• Terminal devices for enterprise IoT users, such as PoS machines, smart locks on shared bicycles, meter terminals in remote meter reading systems for power and water supply, smart door locks, IoT gateways, smart home appliances, smart monitoring and other terminal devices.

Therefore, once the 2G network is shut down, in addition to affecting individual users, some corporate applications will also be affected to varying degrees.

The impact of 2G network withdrawal is obvious, so why are operators still so active?

The withdrawal of 2G networks is inevitable. So what are the benefits of withdrawing 2G and even 3G networks?

The first is to free operators from the predicament of operating at a loss.

Compared with 4G and 5G users, current 2G users are almost worthless. In recent years, the profitability of operators has been declining, and 2G networks not only require equipment maintenance, but also users cannot bring any benefits. Therefore, operators naturally hope to change this situation as soon as possible.

The second is to release high-quality frequency bands.

The 2G network occupies low frequency bands such as 800M and 900M, which have strong penetration and can achieve good network coverage without building a large number of base stations. Therefore, releasing and recultivating these frequency bands for 4G, 5G and other networks can effectively improve coverage capabilities and help operators gain more 5G users and revenue.

Who will have the chance after the 2G network is cleared?

As mentioned above, the number of existing 2G users is still huge. When faced with the question of why the 2G network will be phased out, how it will be phased out, and when it will be phased out in different regions, the core concern of these users is ultimately what they should do after the 2G network is phased out.

According to data, there were 671 million cellular Internet of Things users in 2018, and the number reached 1.03 billion in 2019. As of the end of July 2020, there were 1.071 billion cellular Internet of Things terminal users. At the current rate of development, it is expected to reach 1.2 billion or even 1.3 billion by the end of the year.

Among the existing cellular IoT users, 2G users still dominate, and this market needs to be filled by other technologies.

According to the "Notice on Deeply Promoting the Comprehensive Development of Mobile Internet of Things" recently issued by the Ministry of Industry and Information Technology, it is also required that by the end of 2020, the number of mobile Internet of Things connections will reach 1.2 billion.

In this "Notice", it is clearly stated that it is necessary to guide new IoT terminals to stop using 2G/3G networks and promote the migration of existing 2G/3G IoT services to NB-IoT/4G (Cat1)/5G networks. NB-IoT and Cat1 will work together to take over 2G/3G IoT connections, improve spectrum utilization efficiency, and establish a comprehensive mobile IoT ecosystem with the coordinated development of NB-IoT, 4G (including LTE-Cat1) and 5G.

From official documents, we can see that 2G will officially withdraw from the stage of history, and NB-IoT and Cat.1 will be the main successors to 2G/3G services. Let's analyze how big the opportunities are for these two new communication technologies.

1. NB-IoT

NB-IoT has been in official commercial use for nearly three years. According to data previously released by operators, the cumulative number of NB-IoT card issuances in China in the first half of this year has exceeded 100 million.

Of course, there will be a certain overlap in the card activation data of the three major operators. According to the author's estimation, the overall market shipment volume of NB-IoT modules is about 60 million. Even so, the development trend of NB-IoT is still good.

The technical characteristics of NB-IoT are mainly reflected in low power consumption, low cost, small data volume and fixed (non-mobile) scenarios. In such scenarios, NB-IoT will be a good replacement for 2G.

What about the industrial opportunities of NB-IoT? We analyze it from the aspects of chips, modules, terminal hardware and solution providers.

(1) First, in terms of chips, there are already many chip suppliers in the domestic NB-IoT market, and each of them has formed its own characteristics.

• Qualcomm's NB-IoT chip is a multi-mode product. Coupled with its performance advantages and brand premium, it is a high-end product and is more often chosen by products used overseas.
• HiSilicon's NB-IoT chip is the mainstream in the current domestic NB chip market. It has the earliest commercialization time and its stability has been verified by the market. In comparison, Unisoc/MTK's NB-IoT chip was launched later and has its own characteristics. The overall price is cheaper than HiSilicon.
• The NB-IoT chips of the two domestic startups, CoreWing and Yixin, are characterized by high cost performance. Currently, they have been recognized by many customers in the market, and mainstream module manufacturers are launching NB-IoT modules based on their chip products.

Of course, there are more chip manufacturers eyeing the NB-IoT chip market. It can be said that the NB-IoT chip market is very lively. However, NB-IoT chips belong to the general market, and to make money, you need to sell in large quantities. According to current market information, the chip price is about US$1, and as the volume increases, there will be room for optimization.

Therefore, the market opportunities in this link mainly depend on two aspects.

• One aspect is to see how many NB-IoT shipments there are in a year. The current market has tens of millions of applications per year, which is not enough. We need tens or even billions of shipments per year. The fundamental factor in shipments is market demand. Currently, most NB-IoT applications are concentrated in water meter and gas meter scenarios. The market growth needs the support of more similar scenarios.
• Another aspect is the market reshuffle. If the market growth fails to meet expectations, the NB-IoT chip market is bound to undergo a reshuffle, with some players withdrawing and making the industry more concentrated.

(2) The second is the module link. There are many NB-IoT module manufacturers. It is understood that there are dozens of companies developing NB-IoT modules on the market. Of course, although there are many NB-IoT module manufacturers, the concentration of shipments is also relatively high. The top 5 manufacturers occupy most of the market.

The gross profit margin of the module segment is average. According to the annual reports of major module manufacturers, the gross profit margin of the industry is about 20%. The price of NB-IoT is affected by both the market and policies, which makes it even lower and the gross profit is even lower. Therefore, a large volume is required to make money. Module manufacturers without much shipment will gradually think that this is a "chicken rib" market.

Of course, module manufacturers have another route to take, which is to make customized hardware and solutions based on module products, which depends on the market strategy of each module manufacturer.

(3) The last part is terminal hardware and solution providers. Compared with chips and modules, this link is more decentralized and customized, but the overall industry value is also the highest.

In fact, this is easy to understand. The market price of an NB-IoT module is about 20 yuan (the cheapest is more than 10 yuan), while a hardware terminal, taking a typical water meter as an example, is about 200 to 300 yuan. Just from the unit price of the product, it can be seen that this link has a higher value.

The market value that an NB-IoT chip (module) can leverage is not limited to this. On the one hand, based on NB-IoT, more software data services can be expanded, allowing hardware manufacturers to easily develop into solution providers and expand their business margins; on the other hand, this is also an opportunity for hardware manufacturers to upgrade their brands.

2. Cat.1

Compared with NB-IoT, Cat.1 has a faster transmission rate and combines mobility and voice call functions. Therefore, Cat.1 can well replace some other scene requirements of 2G, such as locators, PoS machines, shared bicycles/electric vehicles, children's watches, etc.

It is relatively easy to develop the market for scenarios where Cat.1 is applicable, and it does not have to face competition from other technologies such as LoRa and ZETA. Therefore, once Cat.1 was launched, it became the new darling of the industry.

Specifically speaking, the overall industrial rules are similar to those of NB-IoT.

Currently at the chip level, the two Cat.1 chip players are ASR and UNISOC. According to follow-up information, other manufacturers are also actively preparing for this market.

As for the module segment, at the beginning of this year, mainstream domestic cellular module manufacturers have developed Cat.1 module products, and module manufacturers are promoting Cat.1 as an important track.

In the terminal application and solution phase, according to the information I have learned, the market has already shipped a few million units. The specific market performance remains to be verified.

In summary:

Whether it is NB-IoT or Cat.1, price (cost) competition is unavoidable at the chip and module level. However, for the application market, these two types of technologies will be the most common connection technologies for the Internet of Things in the future, and the market value they can bring will be unlimited.