After the mixed-ownership reform, can China Unicom seize the opportunity to make a comeback in 5G?

Image source: Visual China

Among China's three major telecommunications operators, China Mobile and China Unicom are the most well-known, but in the 4G era, China Unicom slipped from second to third. However, China Unicom learned from its mistakes and its performance improved significantly after the mixed-ownership reform in 2017, mainly reflected in the sharp increase in the number of 4G users and the increase in profit margins.

The number of 4G network users has increased dramatically. In 2017, China Unicom's 4G network users increased by 70.33 million, which is the best year for Unicom in recent years. It is worth noting that nearly 50 million of these 70.33 million users are Internet card users. This shows that mixed ownership reform has indeed brought great vitality to Unicom.

Profit margin has increased significantly. In March 2018, China Unicom announced its 2017 full-year financial report, in which communication service revenue was RMB 249.02 billion, a year-on-year increase of 4.6%, and net profit was RMB 1.83 billion, a year-on-year increase of 192.5%. Compared with the dismal performance of China Unicom's net profit of only RMB 480 million in 2016, a year-on-year decrease of 96%, China Unicom's profit margin in 2017 has increased significantly, all thanks to the mixed ownership reform of China Unicom in 2017.

Although China Unicom's profit margin has achieved its first growth in recent years, it has not achieved the expected results of the mixed-ownership reform. Not only is there a large gap compared with China Mobile's 15.4% profit margin and RMB 114.219 billion, there is also a big gap compared with China Telecom's 5.1% profit margin and RMB 18.617 billion net profit. One of the reasons for failing to achieve the expected results of the mixed-ownership reform is that some existing problems were not resolved in a timely manner.

China Unicom's mixed-ownership reform has achieved some results, but problems remain

China Unicom's mixed ownership reform in 2017 has helped it to increase its 4G user base to 175 million, approaching China Telecom's 180 million, and has also helped to improve its profit margin. The mixed ownership reform has produced immediate results, but its net profit margin of 0.95% shows that there are still some problems with the reform.

The capital link is still weak

Insufficient funds has always been the biggest problem plaguing China Unicom, and it is also the fundamental reason why China Unicom has been left far behind by the other two operators.

Although China Unicom has introduced 75 billion yuan in funds through mixed ownership reform, it is only a drop in the bucket compared to the huge expenditure of operators. It is still not enough to solve the problem of insufficient funds for China Unicom's 4G network construction, let alone to build 5G infrastructure from scratch. Weak capital links are still the biggest problem hindering China Unicom's development.

On the one hand, the weakness of capital links will reduce China Unicom's competitiveness. Lack of funds has led to China Unicom's incomplete infrastructure construction and a long upgrade cycle, which not only reduces user experience, but also puts China Unicom at a disadvantage in the competition with the other two operators;

On the other hand, the weak capital link will increase the company's development burden. The most intuitive example is China Unicom's streamlining of its organizations and layoffs. The number of organizations has been reduced from 27 to 20, a reduction of more than 20%; the number of staff has been reduced from 1,787 to 891, a reduction of more than 50%. The main purpose is not only to improve the company's execution, but also to "cut costs" due to lack of funds.

Poor infrastructure construction and user experience

The deepest impression that China Unicom leaves on users is its poor signal, and the direct reason for the poor signal of Unicom and the reduced user experience is the poor infrastructure construction of China Unicom.

In the "Three-Year Action Plan for the Construction of Major Information Infrastructure Projects" jointly issued by the National Development and Reform Commission and the Ministry of Industry and Information Technology in 2016, it was clearly stated that 2 million new 4G base stations would be built in the next three years. China Mobile had built 1.87 million 4G base stations by the end of 2017, and its infrastructure construction was relatively complete. The task of building 2 million new base stations mainly fell on China Unicom and China Telecom.

However, as China Unicom only had 850,000 4G base stations by the end of 2017, and its operating performance in the past two years was dismal, it was simply unable to afford the construction of a large number of base stations, which directly led to the slow construction of China Unicom's infrastructure and indirectly led to poor user experience.

Failed to grasp the development trend of the times

Looking at the development of China Unicom in the past decade, it is not difficult to find that Unicom had many good development opportunities, but failed to seize the opportunities to develop the company. The reason is that it failed to grasp the development trend of the times.

For example, when 4G networks began to become popular, China Unicom failed to fully consider the relationship between the market, consumers and the company, and only formulated its operating plan based on its own situation. It went against the trend of the 4G era and continued to develop 3G networks according to its plan regardless of market changes. When China Unicom discovered that 4G was the mainstream of the era, China Mobile and China Telecom had already occupied most of the 4G market. It was too late for China Unicom to make up for its mistakes, and it eventually fell behind in the 4G era.

Three arrows piercing the clouds, breaking through the dark clouds that hindered China Unicom's development

China Unicom introduced not only BAT Internet funds, but also vertical industry giants, state-owned funds and other funds through mixed ownership reform in 2017. Although it has made a comeback in the "second half" of 4G, it still needs to do the following three things if it wants to surpass China Telecom and return to second place:

Actively introduce more capital to prepare for 5G

The main reason why China Unicom is far behind the other two communication companies in the 4G era is that it did not seize the 4G opportunity. The main reason for not seizing the 4G opportunity is that the funds are limited and the investment in 4G is small. Therefore, it should actively introduce more capital to prepare for 5G and seize the 5G opportunity. China Unicom can introduce funds through three channels.

The first one: introduce more private enterprise capital.

The results of the mixed-ownership reform have been very obvious. A total of RMB 78 billion has been introduced for China Unicom. The capital inflow of RMB 78 billion has reduced China Unicom's asset-liability ratio from 62.6% in the same period last year to 46.5%, thereby further improving the construction of 4G infrastructure. However, these funds are far from enough to support China Unicom in improving the construction of the entire 4G network, nor can they provide more funds for the development of 5G. Therefore, more private enterprise capital needs to be introduced to provide guarantees for the rapid development of China Unicom.

The second method is to lower the entry threshold and introduce capital investment from private small and medium-sized enterprises.

Although China Unicom has introduced large group companies to invest in mixed-ownership reform, large group companies are a minority after all, while the combined strength of small and medium-sized enterprises is infinite. China Unicom should lower the entry threshold and encourage the inflow of capital from private small and medium-sized enterprises. Trickles can also converge into rivers and seas.

The third option: liberalize employee shares and allow more employees to hold shares.

As of 2015, China Unicom had more than 230,000 employees. If more employees were allowed to hold shares, it would not only bring a large amount of funds to China Unicom and enable it to prepare for 5G, but would also increase employees' work enthusiasm and actual income, killing two birds with one stone.

Strengthen infrastructure construction and improve user experience

Although China Unicom has made a series of adjustments in "soft power" and the gap between it and the other two companies is narrowing, the user experience of China Unicom is still not very good. Due to the weak infrastructure construction of China Unicom, the lack of "hard power" has caused the poor user experience of China Unicom. So how can China Unicom strengthen its own "hard power" to promote the improvement of "soft power" and improve the problem of poor user experience?

The first one: strengthen the construction of infrastructure.

China Unicom was left far behind in the 4G era because it had a small number of 4G base stations and its signal was not as good as that of the other two operators, which greatly affected the user experience. This is also the reason why Unicom has been experiencing negative growth in 2015 and 2016. Now that we are in the vacuum period of transition from 4G to 5G, China Unicom not only needs to build 4G base stations, but also needs to prepare for the large-scale construction of 5G base stations to avoid repeating the mistakes of the 4G era.

The second option: further reduce package charges and balance user experience.

Since China Unicom has already lost to the other two operators in terms of network signals and base station construction, it must make up for its own shortcomings in other aspects to improve its competitiveness. Although China Unicom's tariff is the most affordable among the three operators, it is not much different from the other two. If it wants to have the strength to compete with China Mobile and China Telecom, the most direct and effective way is to further reduce package charges, so that users can feel the real benefits, so as to make up for the lack of product competitiveness, and further improve the user experience.

Insight into the development trend of the times and formulate supporting plans to achieve targeted results

China Unicom has funds and "soft and hard" strengths, but it is far from enough. It is like a person with a healthy body and a high IQ, but without developing the brain and coordinating the body, nothing can be achieved. Therefore, China Unicom needs to have a keen sense of smell and always have insight into the development trend of the times in order to win the battle.

Insight into the development trend of the times can put a company on the road to rapid development, and formulating corresponding supporting plans can make the company develop with half the effort. Xiaomi is such a company. When the mobile phone market was caught in a red ocean, Xiaomi Mobile Phone saw that the development trend of mobile phones must be differentiation, and quickly formulated a product strategy. In 2016, it launched the world's first full-screen mobile phone Xiaomi MIX, which allowed Xiaomi to gain a firm foothold in the high-end mobile phone market.

When 4G was about to arrive, China Unicom had no insight into the development trend of the times and indulged in the beautiful dream brought by 3G, which eventually led to a complete defeat in the 4G era. Now 5G will be the new trend of the times and the best time for China Unicom to fight back. At this time, China Unicom should always be vigilant, understand the development trend of 5G, and formulate corresponding plans to achieve targeted results.

summary

In general, although China Unicom was overtaken by China Telecom in the "first half" of 4G due to some problems in decision-making and service, it is not too late to make up for the loss.

In the "second half" of 4G, China Unicom has slowly caught up with China Telecom through mixed-ownership reform and other measures, and is even showing signs of surpassing it. However, Unicom still has a long way to go before it can surpass China Telecom or even China Mobile. It needs to seize the once-in-a-lifetime opportunity of 5G to stage a comeback.