China Telcos Lose Subscribers; 5G “Co-build and Co-share” agreement to accelerate
Decrease in China’s Mobile Subscribers:
China’s wireless carriers are reporting substantial drops in subscribers as the coronavirus crisis reduces business activity.
China Mobile Ltd., the world’s largest wireless carrier, reported its first net decline since starting to report monthly data in 2000. China Mobile subscriptions fell by more than 8 million over January and February, data on the company’s website show.
China Telecom Corp. said it lost 5.6 million users in February, while China Unicom Hong Kong Ltd. subscribers fell by 1.2 million in January.
The across the board China subscriber slump indicates that the coronavirus pandemic crisis, which first emerged in China late last year, is crimping growth, even at businesses that provide essential services and earn monthly revenue. ARPU will likely also decline, according to analysts.
Chris Lane, an analyst at Sanford C. Bernstein & Co said that part of the decrease in wireless subscribers could be due to migrant workers — who often have one subscription for where they work and another for their home region — canceling their work-region account after the virus prevented them from returning to work after the Lunar New Year holidays which began in late January.
While the drop in users is unusual, the total is small relative to total wireless subscriptions, which have risen to a combined 1.6 billion for the three carriers. Things may improve starting this month as work in factories and other businesses in China resumes, Lane said.
Net income fell 9.5% last year at China Mobile, partly on government mandates to cut prices and improve service, but also due to a spike in financing costs – up from RMB144 million ($20.2 million) to RMB3.25 billion ($460 million).
The company, which reported earnings last week, told analysts revenue would remain stable this year, a sign management was not worried about the fall in subscribers.
China Unicom overcame flat revenue growth to post an 11.1% increase in net earnings for 2019. The state-owned telco slashed opex by 22% and marketing cost by 5% to record a 11.3 billion yuan ($1.6 billion) full-year profit.
“In 2019, the domestic telecommunications industry development experienced a short-term pain with weak revenue growth and pressure on industry value,” Chairman and CEO Wang Xiaochu said.
Co-build and Co-share Agreement:
In September 2019, China Unicom entered into a cooperation agreement with China Telecom to jointly build one 5G access network across the country. China Unicom would be doubling it’s own 5G network coverage, bandwidth, capacity and transmission speed, providing users with better experience.
China Unicom said it will actively step up the “co-build and co-share” with China Telecom in areas such as 4G indoor distributed antenna systems, server rooms, optical fiber and pipelines to further enhance network advantages and corporate value.
4 thoughts on “China Telcos Lose Subscribers; 5G “Co-build and Co-share” agreement to accelerate”
Actively executed new vision with remarkable achievement in the “co-build and co-share” of 5G network In September 2019, the Company entered into a cooperation agreement with China Telecom to jointly build one 5G access network across the country.
While significantly saving capital expenditure, the Company would enjoy the doubling of 5G network coverage, bandwidth, capacity and transmission speed, providing users with better experience. Currently, the two companies (China Unicom and China Telecom) shared 50,000 5G base stations and jointly saved investment costs of RMB10 billion.
In the future, the Company will leverage the advantages of “co-build and co-share” and invest steadily, precisely and dynamically on 5G network deployment, with due regard to the Page 4 of 5 technological progress, maturity of the value chain, as well as market and business demand, etc. While achieving material saving in capital expenditure and operating expenses, the Company would see its 5G network quality comparable with the leading operator. In addition, the Company will actively and comprehensively step up the “co-build and co-share” with China Telecom in areas such as 4G indoor distributed antenna systems, server rooms, optical fibre and pipelines to further enhance network advantages and corporate value.
China Telecom, which has 10.73 million 5G subscribers, expects to spend 45.3 billion yuan ($6.4 billion) on 5G in 2020 – up from a thrifty RMB9.3 billion ($1.3 billion) last year.
In its 2019 full-year results presentation, China Telecom said last year 5G comprised just 12% of its total capex of RMB77.6 billion ($11 billion). This year it is boosting total capital spending to RMB85 billion ($12 billion), of which 5G will account for 53%.
“The company will push forward 5G network construction on all fronts,” said Chairman and CEO Ke Ruiwen.
The company says it has already seen an uptick in ARPU from its 5G customers of around 10%, to RMB91.9 ($13). Each subscriber is consuming 13.2GB of data each month.
It says it is aiming for a “5G-scale breakthrough” this year, targeting an additional 60–80 million subscribers.
It built 40,000 5G basestations and co-shared another 20,000 with China Unicom in 2019, covering 50 cities under a network-sharing arrangement.
As with rivals China Mobile and China Unicom, China Telecom’s 2019 numbers show some modest gains against a backdrop of zero growth. (See China Mobile reports 15.4M 5G customers and China Unicom boosts earnings but sales remain flat.)
Ke said the company had “capitalized firmly on the invaluable opportunities arising from the digital transformation of the economy and society, as well as 5G commercialization.”
It posted a 3.3% fall in net profit to RMB20.5 billion ($2.9 billion) on flat operating revenues of RM375.73 billion ($53.2 billion).
Service revenue improved 2%, including a 4.7% bump in mobile services, but the wireline business shrank by 0.4%. The information and application services segment, which includes cloud, data center and IoT, grew 5% and now accounts for 23% of operating revenues.
China is going all out on 5G construction
The headline may not be new, but the numbers are.
The big three telcos are ready to sink around 180 billion yuan ($25.5 billion) into their 5G rollouts in 2020. That’s more than four times the 2019 level.
It’s not clear whether this is something long planned, or whether it flows from the party leadership directive to double down on 5G and boost the virus-stricken economy. (See China 5G: Unicom and Telecom speed up rollout.)
However, analysts have complained that the aggregate rise in capex was short of expectations, suggesting that operators have shifted some spend from other items to 5G.
Additionally, China Tower expects to tip RMB17 billion ($2.4 billion) into 5G this year, taking the total close to RMB200 billion ($28.2 billion).
It’s not always easy being government-owned
Being state-owned in a socialist economy isn’t always a doddle.
Sure, the regulator has your back, and you don’t have to squander your hard-earned cash in a frivolous spectrum auction, but every now and then the public interest rears its ugly head.
Specifically, the MIIT has been bearing down on operators over the past five years, demanding “faster speeds and lower prices.” The result is a series of price cuts, in particular in mobile.
In the first year of the scheme, China Mobile cut mobile tariffs by 43%. Its average revenue per user since then has fallen from RMB59 ($8.30) to RMB49 ($6.90). China Unicom’s has shrunk from RMB47.80 ($6.75) to RMB40.10 ($5.65).
No wonder they struggle to get any revenue growth in their core business.
Telco leaders need to get their story straight about subs losses
The plunge in total subscriber numbers over the first two months of the year has attracted a lot of attention both inside and outside China. (See China’s mobile subs base shrinks by 20M.)
Following a tepid January, the three operators lost 19.4 million customers between them last month, with the smallest player, Unicom, taking the biggest hit.
One of the more lurid explanations is that the disappearance of millions of subscribers reflects an unreported mass death toll from COVID-19. China’s numbers are dodgy but not that dodgy.
Problem is, industry bosses themselves aren’t sure what to make of it.
China Unicom boss Wang Xiaochu blames it on customers dumping dual SIMs. For years, a lot of people have carried a second or third SIM to avoid roaming and long-distance charges. But those charges are disappearing because of changing price structures. Plus, people have been staying at home and connecting over Wi-Fi for the past two months.
China Telecom vice president Wang Guoquan says it’s because of the closure of retail stores during the outbreak, while China Mobile CEO Yang Jie also pins it on the coronavirus without elaborating how.
The epidemic is no doubt the biggest factor – the January number is weak because the virus wiped out the traditional Chinese New Year shopping blitz. The collapse in February, while much of the country was in lockdown, appears a direct result of the contagion.
However, analysts also point to the introduction of even tighter ID authentication rules in December, causing customers to abandon or decide not to renew their services.
Network sharing is in
The Telecom-Unicom network-sharing experiment appears to be an unqualified success. It has saved RMB10 billion ($1.4 billion) on rollout costs since last September, according to Unicom figures.
Combined, it will give the partners scale to go head to head with China Mobile, which expects to have 300,000 basestations in operation by year end. The two smaller operators are targeting 250,000 by the end of the third quarter.
But it may also pave the way to a partnership between China Mobile and the underfunded new licensee, China Broadcast Network (CBN). (See China’s Newest Operator Now Has 2 Suitors.)
China Mobile’s Yang Jie confirmed last week he’s had discussions with CBN management on a sharing arrangement.
There’s some pressure from above to get a deal done. But any agreement struck would certainly look different from the Telecom-Unicom partnership, which is basically one of equals.
Coronavirus Outbreak Has Led to a Decline in the Number of Mobile Phone Users in China
According to Han Xia, director of the Information and Communication Administration Bureau of the Ministry of Electricity and Information Technology, the recent performance reports of operators show that the number of mobile phone users has decreased. Based on the data from the three operators, the following reasons were found to be attributable to the decrease:
First, due to the coronavirus outbreak, many entity channels of telecom companies were unable to operate normally in February, resulting in a slowdown in new user growth. Besides some users cancel their temporary phone cards because of reduced social and economic activities as they cannot return to work.
Second, as people across the country do not need to change their phone numbers to switch to another mobile service provider and the country promotes faster and more affordable internet connection, some dual-SIM phone users no longer see the need for alternative traffic cards, which resulted in the cancelations of the secondary phone numbers.
Han said he believed the number of mobile phone users could grow as economic and social activities gradually resume. According to the latest data from China Telecom, the number of mobile phone users in China increased by 245,000 per day from March 1 to March 22, which is an increase of 114% from February.
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