Shifting gears to 5G: Operators will experience both hardship and sweetness in 2019

Recently, the three major operators have released their full-year financial reports for 2019. The financial reports show that basic telecommunications companies have actively and effectively responded to the pressure and challenges of the operating environment, continued to promote transformation and upgrading, and the industry has generally operated smoothly.

The development of the ICT industry in 2019 showed four major characteristics

The growth rate of main business income stabilized and rebounded, and profit growth showed differentiation

Due to the combined effects of speed increase and fee reduction, fierce market competition, and the decline of traffic dividends, the development of the basic telecommunications industry encountered difficulties in the first half of 2019, with negative growth in revenue and profit. In the second half of 2019, telecom operators actively responded to challenges and adjusted their business development strategies in a timely manner. The growth rate of main business revenue all achieved positive growth, but profit growth diverged. In 2019, the communication service revenue of China Telecom, China Mobile, and China Unicom increased by 2%, 0.5%, and 0.3% year-on-year. China Unicom's net profit reached 11.3 billion yuan, an increase of 11.1% year-on-year, while the net profits of China Telecom and China Mobile fell by 3.3% and 9.5% year-on-year, respectively.

The mobile user market is becoming increasingly saturated, and the user scale has shrunk significantly

As of the end of 2019, the number of mobile phone users of China Telecom, China Mobile and China Unicom were 340 million, 950 million and 320 million respectively. However, due to the stagnation of offline customer acquisition channels such as business halls and ground promotion during the epidemic, the scale of mobile phone users of the three major operators has dropped significantly since 2020. The data from the operation report for January-February 2020 released by the three major operators showed that as of the end of February 2020, the scale of mobile phone users of China Telecom, China Mobile and China Unicom were 330 million, 940 million and 310 million respectively, a decrease of 5.17 million, 8.12 million and 7.78 million respectively compared with the end of 2019.

Traffic growth but no revenue growth is still obvious, and ARPU value continues to decline

From the perspective of the three major operators, in 2019, the 4G DOU of China Telecom, China Mobile and China Unicom were 7.9GB, 7.7GB and 10.7GB respectively, up 43.6%, 79.1% and 24.4% year-on-year respectively, and the 4G ARPU were 49.5 yuan, 56.4 yuan and 44.5 yuan respectively, down 11.3%, 8% and 16.5% year-on-year. From the industry perspective, the data of the "2019 Communications Industry Statistical Bulletin" shows that in 2019, the consumption of mobile Internet access traffic reached 122 billion GB, a year-on-year increase of 71.6%. The average monthly mobile Internet traffic per user (DOU) reached 7.82GB throughout the year, 1.69 times that of 2018, and the ARPU of mobile communication users decreased by 7.5% year-on-year.

5G network construction is progressing steadily, and investment will account for more than 50% in 2020

In 2019, the scale of 5G base station construction nationwide exceeded 130,000, and operators have officially launched large-scale commercial use of 5G in 50 cities. Urban areas in Beijing, Shanghai, Guangzhou, Hangzhou and other cities have achieved network coverage. As of February 2020, the number of 5G package users announced by China Telecom and China Mobile reached 10.73 million and 15.399 million, respectively. In 2020, the three major operators will further increase the construction of 5G networks. The planned budgets for 5G network investment of China Telecom, China Mobile and China Unicom are 45.3 billion yuan, 100 billion yuan and 35 billion yuan, respectively, accounting for 53.3%, 55.6% and 50% of the total corporate budget, respectively.

Profit growth points still need to be explored

Traditional communication business market reaches its "ceiling"

After nearly a decade of rapid development, the traditional communications business market has become increasingly saturated, with little room for revenue growth, and it is becoming increasingly difficult for telecom operators to acquire new public users.

• First, the growth of mobile phone users has clearly peaked. In 2019, the total number of mobile phone users reached 1.6 billion, with the net increase for the whole year dropping from 149 million in the previous year to 35.25 million. The penetration rate of mobile phone users reached 114.4 units per 100 people.
• Second, the development of fixed Internet broadband users has stabilized. The total number of fixed Internet broadband access users has reached 450 million. The net increase for the whole year has dropped from 58.84 million households in the previous year to 41.90 million households. Calculated as three family members per household, it is close to the total population of the country.
• Third, the growth rate of mobile data and Internet business revenue, which is the traditional growth engine of the industry, continued to slow down, and its contribution to the industry's revenue growth continued to decline. The revenue of mobile data and Internet business increased by 1.5% year-on-year, and the growth rate decreased by 8.7% compared with 2018. As the dividend of everyone's connection gradually peaks, the driving force of mobile data and Internet business on the growth of basic telecommunications revenue will further decrease.

The new business market has not yet reached scale

In recent years, basic telecommunications companies have continued to accelerate digital transformation and development, and have actively developed emerging businesses such as big data, cloud computing, artificial intelligence, and the Internet of Things. Although these new businesses have grown at a considerable rate, their proportion in telecommunications business revenue is still relatively low, and their contribution to industry revenue growth is limited. In 2019, fixed value-added services such as cloud computing, big data, and the Internet of Things grew by 21.2% year-on-year, accounting for only 10.5% of telecommunications business revenue, and it will take time to cultivate them.

In addition, the new business areas also face cross-competition from Internet companies. Take the cloud computing field as an example. Internet companies such as Alibaba and Tencent are leaders in the domestic cloud computing market. The latest report released by consulting firm Canalys shows that Alibaba's cloud computing market size ranks fourth in the world with a market share of 4.9%, second only to Amazon (32.3%), Microsoft (16.9%) and Google (5.8%).

It will take some time for 5G to be widely used

Currently, telecom operators are actively carrying out 5G network construction and operation preparations, but 5G still faces many challenges in achieving large-scale popularization. First, the initial investment returns of 5G commercialization are low. Compared with 4G, the scale, energy consumption and price of 5G base stations have doubled. The "four generations of 2G/3G/4G/5G" will also bring great pressure to network operations, resulting in a significant increase in network construction and operation and maintenance costs.

Second, there is a lack of "killer" application services on the user side. Currently, the 5G packages launched by the three major telecom operators only include membership rights for online video, online music and other applications, and have not yet expanded new heavyweight 5G application scenarios.

Third, industry integration applications are still in the exploratory stage. The focus of 5G development is to empower various industries, but the integration of 5G and vertical industries is a new thing and is still in the exploratory stage. There are difficulties such as unclear demand and unclear commercial model. Although some vertical industry solutions of telecom operators have been implemented, since the standards of key application scenarios have not yet been determined, it is still impossible to expand new markets with the help of ecological cooperation.

Taking "new infrastructure" as the starting point

We should make every effort to expand emerging businesses

In response to the current difficulties and challenges, the basic telecommunications industry should take the construction of new infrastructure as a starting point, improve service quality as its goal, and expand business development as a new breakthrough point, and strive to promote high-quality development of the industry.

First, vigorously promote the construction of new infrastructure. Comprehensively carry out the construction and deployment of 5G networks, deepen co-construction and sharing, and achieve continuous coverage in industry-intensive application areas such as cities, counties, towns, and industrial parks. Accelerate the extension of gigabit broadband network coverage, comprehensively improve the access capabilities of gigabit broadband for urban households, small and medium-sized enterprises, and commercial users, and promote the full coverage of gigabit broadband networks. Strengthen the construction of new infrastructure such as artificial intelligence, industrial Internet, Internet of Things, and data centers, improve the intelligence level of traditional infrastructure, build a high-speed, intelligent, ubiquitous, secure, and green new generation of information networks, and lay a solid foundation for the development of the digital economy.

Second, we will accelerate the expansion of new space for industry development. We will grasp the development laws of the information and communication industry and the development opportunities of the digital economy, and accelerate the transformation from the traditional business development model dominated by the personal market to the digital development model of the integrated development of the family, government and enterprise markets. For the public and family markets, we will make full use of the business data of the entire process of multi-touch points, achieve real-time monitoring and feedback of user perception, and realize personalized, accurate and proactive push, so that customers can enjoy high-quality products and services anytime, anywhere and at will. For the government and enterprise markets, we will seize the new opportunities for the development of 5G, cooperate with cloud computing, big data, the Internet of Things and other technologies, carry out 5G business application demonstrations and explorations, create typical 5G application scenarios, and help thousands of industries transform digitally. Deepen 5G open cooperation, strengthen joint research and development with various industries, and jointly build a cooperative ecology with complementary functions, benign interaction, collaborative research, and open sharing.

The third is to focus on improving service quality and level. Taking the "number portability" as an opportunity, by creating differentiated products and services, improving user perception, attracting and retaining customers, and comprehensively improving service quality. Further standardize telecommunications charges and business promotion, continuously streamline the number of packages on sale, solve problems such as too many packages, incomprehensible packages, and difficult choices, and eliminate the restriction of old users to choose new packages and other new and old rights. Protect users' right to choose freely and enhance the people's sense of gain. Enhance network security protection capabilities, deepen the management of spam text messages, harassing calls, and bad websites, deepen the prevention and crackdown on communication information fraud, study and respond to new network security risks, and effectively protect national network security and citizen information security.