Fixed-line broadband rates drop again, how should operators respond?

This year marks the sixth year of the implementation of the policy of increasing speed and reducing fees. The latest official news has made it clear that the average broadband and dedicated line charges will be reduced by 15% in 2020. The speed increase and fee reduction targets broadband and dedicated lines, which may indicate that the unit price of traffic is already low enough and that there is room for broadband price reduction. Judging from the growth rate of broadband revenue in the past two years, broadband has become the fastest growing business among traditional businesses.

How should operators respond to the request for further fee reductions for key businesses after they have just escaped the quagmire of negative revenue growth in the second quarter of 2019?

1. Price increase is no longer possible, expanding the user base is the first choice

For a long time, the price of broadband in my country was higher than the global average. It was not until China Mobile entered the broadband market in December 2013 that the monopoly of "Unicom in the north and Telecom in the south" was broken. With the support of the "Broadband China" strategy and the entry point of "optical fiber in and copper out", my country's broadband construction has embarked on a path of ultra-high-speed development. With the continuous expansion of urban and rural coverage, driven by China Mobile's "free" gifts, the scale of broadband users in my country has experienced explosive growth. In 2016 and 2018, China Mobile, which had just entered the market, surpassed China Unicom and China Telecom respectively to become the new overlord in the broadband market.

The biggest benefit for the majority of users is that after China Mobile entered the market, it directly forced China Unicom and China Telecom to follow suit and cut prices. Official data from the Ministry of Industry and Information Technology showed that my country's broadband prices fell by more than 40% in 2018. In terms of specific prices, my country's broadband prices dropped from about 70 yuan/month before China Mobile entered the market in 2013 to around 38 yuan/month at the end of 2019. The financial reports of the three major operators show that the ARPU of broadband users of China Mobile, China Unicom and China Telecom are 32.8 yuan/month, 41.6 yuan/month and 42.6 yuan/month respectively.

In fact, even if there is no strong official promotion of broadband speed increase and fee reduction, the price war brought about by China Mobile's entry will directly lower the price of broadband. The price increase of broadband has long been a counter-current operation. In order to increase the scale of broadband business revenue, for operators, expanding the user scale has become one of the most effective ways. At the beginning of 2020, China Mobile officially announced a plan to increase the number of broadband users by 12 million households throughout the year. However, judging from the data as of the end of April, China Mobile's full-year net increase plan is expected to be completed ahead of schedule, and the annual net increase is expected to reach 18 million households.

The latest data released by the Ministry of Industry and Information Technology also shows that the broadband users of the three major operators have maintained a high net growth momentum. As of the end of April, the total number of fixed Internet broadband access users of the three basic telecommunications companies reached 459 million, a year-on-year increase of 7.6%, a net increase of 9.26 million households compared with the end of last year. The official population size of my country is 1.4 billion, and the total number of households is 467 million. From this perspective, the total number of broadband users of the three major operators + China Radio and Television Broadcasting Broadband Users + private enterprises has exceeded 470 million households, which means that the ceiling of the scale of broadband users has been punctured. The future growth of broadband users of operators will either come from poaching each other or from competing for the existing users of private enterprises.

Regardless of where the new users come from and how competitors view the broadband market, China Mobile set a full-year broadband user development target at the beginning of the year. This may not only illustrate the foresight of China Mobile's senior management, but also once again confirm China Mobile's strong execution ability. After all, its "big connection" strategy has clearly defined the broadband development target by 2020. The persistence at this time is the best endorsement of the foresight five years ago. Faced with the demand for another price reduction of broadband and China Mobile's ultra-low price customer acquisition strategy, the pressure on China Unicom and China Telecom will inevitably double.

2. Accelerate the development of smart homes and improve the broadband value chain

Broadband is an asset-heavy business with large construction investment and long payback period. After the market ceiling was broken, it has become very difficult for operators to make profits simply by increasing the number of users. For a long time, the goal of operators to develop broadband has been more to bind users and build a strong barrier for users to leave the network, and they have not done much to promote the extension of broadband business.

If dedicated lines are the closest entrance to information technology applications for government and enterprise units, then broadband is the closest entrance to information technology applications for households. Using broadband as a service entrance, accelerating the extension to smart homes and improving the value chain of broadband are now an urgent and necessary operation. In fact, broadband TV is an extended service of broadband. According to data from the Ministry of Industry and Information Technology, the total number of IPTV (Internet TV) users has reached 300 million, and the penetration rate of broadband has reached 65.4%. In addition, from January to April, the growth rate of IPTV (Internet TV) users was 8.8%, which was higher than the growth rate of broadband users.

In addition to broadband TV, operators can also expand their business revenue sources by accelerating the development of smart home businesses represented by smart security. In this regard, the development strategy currently adopted by operators is relatively conservative, which has affected the speed of business development. In addition to various home appliance and furniture companies, the best agents for smart home business also include various decoration companies. However, operators have not fully realized the value of decoration companies. For example, Vanke is a very good smart home sales agent. Now most of the finely decorated houses sold by Vanke are designed and installed with smart home systems.

3. In addition to channels, content payment is also a trend

During the epidemic, the concept of content payment has begun to be understood and accepted by more and more people. The film and television content and text content that were once free have become paid items. However, from the current situation, the broadband operated by operators is more of a channel, and there is very little achievement in content. Although China Mobile's Migu company can provide services such as video, music, and games, there is no public report on the relevant revenue scale. Although China Unicom and China Telecom also have related content production companies, they have not achieved more significant results in broadband content payment.

Foreign operators have long started to lay out content. In 2015, American telecom operator Verizon acquired America Online (AOL); in 2016, American telecom operator AT&T acquired Time Warner. Although this type of acquisition has not happened in my country, the determination of Chinese operators to build their own content is no less than that of foreign operators. With the commanding heights of content already occupied by BAT, the cooperation between China Mobile and China Broadcasting Corporation in 5G can provide room for imagination for operators to form a group to break through the siege of Internet companies.

Although broadband content payment is a trend and does not yet have the function of contributing to large-scale revenue, in the long run, it is a strategic support point that needs to be reserved in advance. The current broadband fee reduction requirements are also forcing operators to abandon the idea of ​​making money without doing anything, and urging operators to operate from the perspective of innovation and re-entrepreneurship.

From negative revenue growth in 2019 to positive growth now, after a long period of bottoming out and the test of the impact of the epidemic, operators have successfully achieved a rebound in revenue growth. How long can this rebound last and how much room there is for rebound? Operators need to look at it from a broader perspective and a more strategic perspective to promote the rebound to ensure the continued healthy development of the industry and the realization of the goal of leading the world in 5G.