How long can the operators’ hard-earned V-shaped rebound last?

The latest data released by the Ministry of Industry and Information Technology show that from January to April 2020, the three major operators' telecom business revenue totaled 456.2 billion yuan, a year-on-year increase of 2.3%, an increase of 1.6 percentage points year-on-year, and an increase of 0.5 percentage points from January to March. The total volume of telecom business calculated at the same price of the previous year was 460.8 billion yuan, a year-on-year increase of 19%, and an increase of 1.3 percentage points from January to March. Judging from the development trend, after a long period of bottoming out and the test of the impact of the epidemic, telecom business revenue has begun a large-open V-shaped rebound. However, how long can this hard-won growth rebound last?

1. The growth rate of traditional business volume is limited and can only support the status quo

Traffic is currently the largest source of revenue for operators. Data released by the Ministry of Industry and Information Technology show that from January to April, the cumulative traffic of mobile Internet reached 47.9 billion GB, a year-on-year increase of 36.6%; among them, the traffic through mobile Internet reached 46.2 billion GB, a year-on-year increase of 32.4%, accounting for 96.5% of the total mobile Internet traffic. From the growth trend, the growth rate of traffic business volume is in a linear decline. Although the growth rate has not yet reached 0, the current growth rate and the future trend of continued growth and deceleration are unlikely to bring more revenue. In this way, the biggest driving force supporting the growth of operators' telecommunications business revenue will be in a truly weak state. In 2019, the performance growth of operators has already been affected by the momentum of traffic revenue.

In fact, behind the sluggish growth in traffic, we also need to see the correlation between the scale of mobile Internet users and the growth of user DOU. These two are important factors affecting the growth of traffic business volume. In addition, in addition to the continued decline in the growth rate of traffic business volume, data from 2019 show that the unit price of traffic is also in a continuous downward process. According to preliminary calculations based on traffic revenue and business volume, the unit price of traffic has dropped from about 7 yuan/GB at the beginning of 2019 to about 4.9 yuan/GB at the end of 2019. If this decline continues in 2020, traffic revenue may enter a negative growth channel with a high probability. If this is true, the real pillar has reproduced the decadent performance of voice in the past, then the reduction of traffic revenue will inevitably reduce the growth of overall business revenue.

If traffic revenue has not yet reached negative growth, then voice traffic has long been quietly wandering on the road to sunset. According to data from the Ministry of Industry and Information Technology, from January to April, the length of mobile phone outgoing calls reached 680.5 billion minutes, a year-on-year decrease of 13.9%, and the decline narrowed by 3 percentage points compared with January to March. Although the decline in voice business volume narrowed significantly in April, the accumulated negative growth from January to April still far exceeded the average level of last year. In this case, voice revenue will inevitably decline sharply along with the decline in business volume. In addition, it is particularly worth noting that mobile phone users have entered a channel of zero growth or even negative growth. In the absence of new users, the window for further narrowing the decline in voice growth has basically been closed.

In the past two years, although the SMS business has limited growth, the growth rate of business volume and revenue is quite obvious. However, this situation has been reversed. The data from the Ministry of Industry and Information Technology is the best illustration. Official data show that from January to April this year, the national mobile SMS business volume increased by 30% year-on-year, and the growth rate fell by 8.3 percentage points from January to March; the mobile SMS business revenue reached 12.4 billion yuan, a year-on-year decrease of 1%, and the decline widened by 0.3 percentage points from January to March. Although the SMS business volume still has a growth rate of about 30%, the year-on-year revenue has been negative.

2. The revenue of emerging businesses is small and cannot support a strong rebound

The limited growth rate of traditional business volume has led to weak revenue growth. Although the current macroeconomic recovery is conducive to the growth of business volume, after combining various favorable factors, maintaining the status quo is already stretched. Exploring emerging business revenue has long become an imminent and inevitable choice. Although operators have long recognized this reality, the fact that emerging businesses are emerging in itself shows that the market is still in the acceptance period and is far from the explosive growth period of business volume and revenue. In fact, the financial reports of the three major operators in 2019 have already explained this problem. Most of the emerging business volumes have a growth rate close to or even exceeding 100%, and the growth of business revenue is only about 40%. And this is only the explosive growth rate of business volume that should have occurred in the process of development from the starting point to the high point.

If we start with pure business, it is easier for us to see the embarrassing situation of the operators' emerging businesses. Let's take cloud computing as an example. Here we only take domestic enterprises as an example. In the field of cloud computing, Alibaba Cloud, Tencent Cloud, and Baidu Cloud not only started early, but also have flexible business methods and super high market share. The difference between the three major operators and them is definitely not something that can be caught up in 1-2 years. China Unicom's grassroots employees even believe that China Unicom has no pricing power for its own cloud computing services, and even if it does, it is the wholesale price of Tencent Cloud or Alibaba Cloud. In this case, how can operators compete with BAT?

If operators cannot compete with BAT, even if their emerging businesses grow, they cannot become the super driving force for the growth of overall business revenue. After all, they have the ceiling of BAT, just like operators cannot compete with Alibaba in online shopping and Internet finance. It should be said that China Mobile entered the field of Internet finance not too late, but the results of the operation are very obvious. At least China Mobile and Baobao cannot compete with Ali's Alipay, nor can they compete with Tencent's Tenpay. In the field of mobile Internet, or in the field related to mobile Internet, there is a very cruel reality, that is, only the top 2 are the real overlords, who can enjoy all the dividends, and other players are at most a little play, who can get some food and drink, but it is basically impossible to get rich by doing this.

3. A new round of speed increase and fee reduction is coming, and broadband and dedicated line prices will be further reduced

Traditional businesses have entered their twilight period, and the prospects for emerging businesses are not overly optimistic. If this is not considered a weak factor, then the new round of speed increase and fee reduction will definitely put a lot of pressure on the growth of operators' business revenue. The latest news shows that the average tariffs for broadband and dedicated lines have been reduced by 15%. This is another reduction in fees after broadband and dedicated lines have experienced multiple rounds of fee reductions. The current average price of fixed-line broadband is around 38 yuan/month, of which China Mobile's broadband price is only around 33 yuan/month, and China Unicom's highest is around 43 yuan/month. If it is reduced by another 15% on the current basis, then by the end of the year, the average price of operators' broadband will most likely be reduced to less than 35 yuan/month.

For operators, the business with the best user growth, besides 5G, is broadband. According to the data from the Ministry of Industry and Information Technology, 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%, and a net increase of 9.26 million households compared with the end of last year. Judging from the respective situations of the three major operators, China Mobile has maintained its consistent high-speed growth trend, and China Unicom's growth is also relatively obvious. At the beginning of 2020, China Mobile announced that its annual net increase plan for home broadband users is 12 million households. Judging from the current situation, this goal will be achieved ahead of schedule, and the annual user growth is expected to reach 18 million households.

The main users of private lines are government and enterprise units. In the case of a sluggish macro-economy, the bargaining power of enterprises has been strengthened. Now that there is a strong official price reduction requirement, the annual price reduction of private lines must be far more than 15%. The price reduction of private lines is not only a price reduction for incremental users. For operators, price reductions for existing users are also inevitable, otherwise customers will naturally choose to vote with their feet and use private lines of other operators. Price reductions for incremental and existing users mean that operators have to significantly reduce their own revenue space. In fact, broadband and private lines are both businesses that require large investments and slow results. In the case of very small profit margins, continuous price cuts will only force operators to continue to make concessions.

The communications industry in which operators operate is no longer a monopoly industry. There is no problem of monopoly profiteering, nor is there a situation where too many dividends can be released at will. Faced with the huge construction funding requirements required for large-scale 5G construction, operators have long been stretched to the limit and urgently need to use business revenue growth to support the limited cash flow. Although we hope that the operators' business revenue will maintain a certain positive growth and that the current V-shaped rebound can continue, the current reality and the resulting future trend impact may have suggested that the space for a V-shaped rebound is already small and will not last too long.