The decline in operators' ability to generate revenue will affect the rapid deployment of 5G

The report on the economic operation of the communications industry from January to May 2019 released by the Ministry of Industry and Information Technology shows that although the main business income in the first five months totaled 559 billion yuan, a year-on-year increase of 0.3%, the revenue in the same period totaled 643.2 billion yuan, a year-on-year decrease of -0.5%.

We have to admit that the decline in hematopoietic capacity has now become an obvious problem in the communications industry. However, this may go beyond the impact on the operators' own operating performance, further amplifying the influence and bringing unexpected difficulties to my country's 5G deployment and development.

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***Quantitative income growth may show a turning point

There are two important factors that affect traffic revenue: the unit price of traffic and the amount of traffic used. Under the dual influence of the regulators’ continued strong promotion of speed increase and fee reduction and the industry’s internal price competition to attract customers, it is an indisputable fact that the unit price of traffic is getting lower and lower.

With the widespread popularity of low-cost fixed-line home broadband and enterprise dedicated lines, various WIFI signals have largely replaced mobile wireless Internet access. The obvious result is that on the one hand, the scale of mobile Internet users continues to rise, and on the other hand, the penetration rate of mobile broadband (3/4G) users has increased, but in the end, the expected surge in traffic usage has not been achieved.

The unit price of traffic has continued to drop, and the year-on-year growth rate of traffic business volume has continued to decline. The final result is bound to be a weak growth in traffic business revenue. According to data from the Ministry of Industry and Information Technology, from January to May 2019, the three basic telecommunications companies achieved mobile data and Internet business revenue of 257.4 billion yuan, a year-on-year increase of 1.2%.

The difference between this year's cumulative growth of 1.2% and the same period last year's 13.2% is really chilling. It has dropped by 12 percentage points in a year, averaging a drop of one percentage point per month. Based on this, the traffic business revenue may have entered a negative growth channel in July.

Even if traffic did not show a negative year-on-year growth, the current slight growth still requires serious reflection by communications industry practitioners. After all, it is still the era of traffic management that operators are struggling to pursue.

2. Home broadband services are not as good as imagined

Overall, the fixed-line home broadband business is still in a stage of rapid growth. However, compared with the total number of households in China, which is about 460 million, the ceiling of fixed-line home broadband is approaching or has even been broken. This means that the future fixed-line home broadband will inevitably enter a stage of slow growth.

The total number of fixed Internet broadband access users of the three basic telecommunications companies reached 431 million, with a net increase of 24.12 million from January to May. Taking into account the fixed-line home broadband users of other broadband operators, the total number of broadband users in my country has actually exceeded 490 million.

The scale of fixed-line home broadband users continues to grow, and its extended services are also growing. By the end of May 2019, the three basic telecommunications companies had developed 278 million IPTV (Internet TV) users, with a penetration rate of 64.5%. Among them, the penetration rate of China Mobile's Magic Box TV has already exceeded 70%.

However, even with the continuous expansion of extended business volume, the ARPU value of fixed-line home broadband users is still declining. According to public financial report data, in the first quarter of this year, the comprehensive ARPU of China Mobile's fixed-line broadband business dropped from 31.5 yuan in the same period last year to 30.8 yuan.

Considering the low unit price of Internet TV and the fact that most of them are free, the future growth of fixed-line home broadband service revenue needs to be further stimulated by other high-value services. Otherwise, the operators' large fixed-line home broadband investment will be difficult to recover.

3. The small horse of SMS cannot move the big cart of revenue

Data from the Ministry of Industry and Information Technology show that driven by the popularization of services such as service login and identity authentication, the volume and revenue of SMS services have maintained synchronous growth. From January to May, the volume of mobile SMS services nationwide increased by 32.4% year-on-year, and the revenue of mobile SMS services reached 16.57 billion yuan, a year-on-year increase of 7.1%.

Due to the relatively small size of the SMS business, the higher year-on-year revenue growth cannot effectively drive the growth of the overall revenue. It is impossible to rely on the small horse of SMS to drive the whole revenue growth.

Although the scale is not large, compared with the pure negative growth of voice services on overall revenue, SMS business is still worth developing for operators. In the future, as the regulatory authorities continue to deepen the management of spam SMS, whether the growth of operators' SMS business will be affected is still unknown.

4. Operators urgently need to expand their business boundaries and raise funds

Existing businesses are already difficult to monetize, even with various incentives. Although 5G is a huge opportunity, before the wind arrives, operators must still strive to monetize existing resources to the maximum extent possible, shifting from factor competition to factor + capability competition.

In the era of mobile Internet, content has become more and more central to resource allocation. User needs have long shifted from voice and broadband services to a life closer to Internet services. Faced with so many uncertainties in the future, operators are in urgent need of new engines to drive stable revenue growth.

Data released by operators in the first five months of 2019 showed that fixed value-added and other income had seen rapid growth, which was one of the main driving forces for the growth of telecommunications business revenue. From January to May, the three basic telecommunications companies completed fixed value-added business revenue of 59.9 billion yuan, a year-on-year increase of 29%, driving the growth of telecommunications business revenue by 2.41 percentage points.

Fixed value-added and other income here includes new businesses represented by ICT, such as data centers, big data, cloud computing, artificial intelligence, etc. The first quarter financial reports of China Unicom and China Telecom also show the huge potential of emerging businesses.

5. 5G, which has entered an acceleration period, urgently needs financial support

It was expected that 5G licenses would be issued in mid-2020, and the earliest would be the end of 2019 or the beginning of 2020, but now 5G licenses have been issued at least half a year earlier. The various plans of operators at the beginning of the year need to be adjusted urgently to adapt to the changing situation. On the day of the 5G license issuance, the three major operators expressed that they would expand the pilot cities to 40.

At the Mobile World Congress held in Shanghai, everyone was talking about various strategies, tactics and plans for 5G. However, the contradiction between the bright prospects of 5G and the huge amount of funds required for 5G construction has been increasingly widely mentioned. The lack of funds for 5G construction has become a consensus in the communications industry.

How big is the investment demand for 5G construction? Here is an industry analysis. Some industry experts believe that more than 30 billion yuan can buy 400,000 4G base stations, while the same amount can only buy more than 100,000 5G base stations. Zhang Yunyong, a communications industry research expert, predicts that the number of 5G base stations is about 1.5 to 2 times the number of 4G base stations. Based on this, it is speculated that the investment in 5G is about 4 times that of 4G base stations.

Judging from the recent deployment operations of the four major 5G operators, including China Radio and Television, some have rolled up their sleeves and worked hard, while others are still talking about poetry and distant places. After the 5G license was issued, China Mobile was the most active.

Less than a month after obtaining the license, China Mobile placed three large orders in succession. These three orders include 5G core network upgrade, 5G terminal (test version) and 5G first phase wireless project. The budget funds involved exceed 40 billion yuan.

Although operators lack funds for 5G construction, or their construction funds are insufficient, my country's society as a whole is not short of money. Although operators have at least four ways to focus on 5G construction funds, no matter how easy it is to get other people's money, it is not as convenient as your own money.

In addition to the technical maturity of SA, this may have become an important factor affecting the large-scale construction of 5G by some operators. Now waiting has become their obvious operating strategy.

Although 5G provides a lot of opportunities for innovation and development, before 5G is built, operators must make continuous efforts to overcome various difficulties in the current and future construction process. Perhaps operators are now in the so-called "darkness before dawn" before 5G is built. When encountering difficulties, operators must also see hope, after all, "a thousand trees will bloom before a sick tree."