GSMA: China is expected to have 460 million 5G connections by the end of 2025

Recently, GSMA released its latest report "China Mobile Economic Development Report 2019". The report stated that China is expected to become one of the world's leading 5G markets, with an estimated 460 million 5G connections by the end of 2025, accounting for 28% of the total connections.

The report pointed out that as of the end of 2018, China was the world's largest mobile market, with 1.2 billion unique users, almost four times the size of North America. And as consumers and businesses continue to seek to take advantage of the many capabilities of next-generation networks, it is expected that by 2025, the adoption rate of 5G will be much higher than the global average.

Accelerating 5G deployment

"2G followed 3G and then broke through 4G and ran side by side." As we all know, although Chinese operators lagged behind some developed markets in launching 4G, after operators increased their investment in networks, mobile data speeds were improved. At the same time, compared with users in Australia and the United States, Chinese users migrated to 4G services at a faster rate, forming a mass market and economies of scale in a short period of time.

The report shows that by the end of 2018, there were 1.2 billion 4G connections in China, equivalent to 77% of the total number of connections. By 2022, widespread coverage, affordable smart devices, greater use of data-intensive services, and demand for higher speeds will help to further increase 4G connections by 260 million and gradually phase out 2G and 3G. As consumers transition to 5G services, 4G adoption will decline.

The report also clearly pointed out that 5G commercialization is just around the corner. In China, operators are evaluating the pros and cons of non-standalone and standalone 5G networking methods and corresponding networking solutions. At the same time, operators in some other markets have clearly stated that they will first adopt the non-standalone 5G model, incorporating existing 4G infrastructure and targeted small cells into hot spots. Standalone 5G networks will allow 4G and 5G services to run in parallel, eliminating the complexity of LTE integration while achieving economies of scale. China will host the 2022 Winter Olympics and Paralympics, which will further accelerate the pace of 5G deployment. China will become a leader in 5G commercialization along with Japan, South Korea, the United States and other countries, and will lead the network coverage process. GSMA Mobile Intelligence predicts that by 2025, China's 5G connections will exceed the total of North America and Europe, ranking first in the world. It is expected that by the end of 2025, China's 5G connections will reach 460 million, accounting for 28% of the country's total connections.

Investment by major operators will further increase after 2020

GSMA pointed out that although network optimization and spectrum efficiency improvements are expected to make the cost per unit of data for 5G lower than that of 4G, the construction of new networks means that the cost of 5G construction may be higher in the early stages. The report pointed out that in recent years, mobile revenue has continued to grow, but the momentum has stabilized. In more developed markets in the Asia-Pacific region, including Japan and South Korea, core mobile revenue is under pressure from limited user growth and competition in the broader digital ecosystem. China's annual mobile revenue has continued to rise in the current decade and is expected to reach nearly US$177 billion (RMB 1.2 trillion) in 2020. From 2018 to 2025, China's operators' annual revenue will grow at a compound annual growth rate of 1.2%, and during this period, China's mobile revenue growth will account for 16% of the total global mobile revenue growth.

As shown in Figure 1, the annual revenue growth rate of Chinese operators has been slowing down in recent years; due to fierce competition and retail price regulation, the growth rate is expected to be only 1% in 2021, lower than 4% in 2017 and far behind the growth rate of more than 14% in 2013. From 2021 to 2025, the growth rate will gradually flatten. Therefore, the compound annual growth rate of mobile revenue of 7.1% from 2010 to 2017 is expected to be difficult to reappear in the next seven years.

At the same time, the report said that operators will set off the next wave of capital expenditure. From 2010 to 2018, Chinese operators invested more than US$268 billion (about RMB 1.9 trillion) in capital expenditure projects. The investment amount was the highest in 2015, exceeding the previous three years, as operators sought to provide almost ubiquitous 4G service coverage. After achieving this goal, capital expenditures declined significantly from 2016 to 2018, and spending gradually shifted to 4G network upgrades to provide performance improvements and faster throughput speeds.

Currently, Chinese operators are ready to start promoting 5G. Recently, China Unicom announced that it is expected to invest 6 billion to 8 billion yuan in 5G in 2019. It is predicted that the investment of major operators will further increase after 2020, which will likely increase the current 13% capital expenditure/revenue ratio.