China's 3G seeks a breakthrough between cost and profitability

As of this week, the financial reports of the three major operators have been released, and the results for the 2010 fiscal year have been handed in at this time. The "three-way split" pattern is not as good as originally expected.

From the development in 2010, the myth of "high investment, high growth, high profit" of traditional performance of operators seems to be gone forever. With the increasingly fierce competition, the revenue growth has slowed down. The future of the three major operators is pinned on 3G, and they have been scrambling to seize the market for a long time. However, from the perspective of the past few years, although the number of new applications driven by 3G continues to increase, the actual revenue brought to the operators is not as ideal as the market expected.

Zhao Yi, spokesman for China Mobile, said in an interview with the Securities Daily: "With the attention of the Ministry of Industry and Information Technology, the 3G business is currently developing well."

The performance of the three major operators is “not impressive”?

Judging from the financial reports, the monopoly in the telecommunications industry remains unbreakable. The strength of the three major operators is significantly different. Revenue has increased, but it is showing a slowing trend and competition is becoming increasingly fierce.

Earlier, the industry was usually happy to describe the fast-growing telecommunications industry as "high investment, high growth, and high profits." However, now that the "report card" is out, the annual reports recently issued by the three major operators have shown slightly sluggish growth and are "not very impressive."

China Mobile has maintained its position as the "big brother", but its performance growth has slowed down significantly. According to the 2010 annual report released by China Mobile, China Mobile's operating income in 2010 was 485.2 billion yuan, an increase of 7.3%; its profit was 119.6 billion yuan, a year-on-year increase of 3.9%. The growth rate has begun to lag far behind the growth rate of GDP. China Telecom has also sent a signal of slowing growth. Its annual report shows that in 2010, China Telecom achieved operating income of 219.864 billion yuan, an increase of 5% over 2009.

The just-released annual report of China Unicom shows that its profit in 2010 was 3.85 billion yuan, a decrease of 59.7% from the previous year.

Industry analysts believe that although China Unicom suffered a sales loss of 3.4 billion yuan, especially the cost of subsidizing 3G mobile phones of 3.17 billion yuan, which dragged down its net profit, China Unicom's performance growth rate was among the top three operators and still benefited from the rapid growth of 3G.

Last year, China Unicom implemented a high-profile iPhone contract plan to attract consumers to increase their income and launched more than 100 customized 3G terminals including the iPhone 4. On the one hand, it seemed to have won over a large number of high-end customers and taken advantage of the rapid growth of 3G to gain huge profits and win the market. On the other hand, the huge 3G mobile phone subsidy costs dragged down net profits. What does 3G mean to operators and what role will it play in performance?

How much money did 3G make?

Since the telecom restructuring, the industry has pointed out that the 3G era has arrived. Every IT giant such as IBM, Microsoft, HP, Nokia, Motorola, Lenovo Group, etc. is also actively preparing for China's 3G business and grabbing 3G market share.

Although China Unicom pointed out that the main reason for the slow performance growth was that the company's 3G business was still in the early stages of operation, depreciation and amortization, network, operation and support costs and sales expenses (especially 3G terminal subsidy expenses) grew rapidly, bringing great pressure to the company's 2010 profit.

However, it cannot be denied that China Unicom has successfully attracted a considerable number of high-end users by using star terminals such as the iPhone. According to China Unicom's annual report, its 3G users have increased by 11.318 million, reaching 14.060 million, and the ARPU (average monthly consumption) of 3G users is as high as 124 yuan.

Analysts at China Investment Securities pointed out that due to the expansion of network scale and the early stage of 3G business, the network advantages cannot be quickly realized, and operators are bound to face difficulties. Although terminal subsidies can bring faster user growth for operators, the large amount of cost expenditure is enough to drag down performance. Terminal subsidies have become a major task that requires heavy investment.

It is reported that China Telecom’s mobile phone subsidies reached 12.1 billion yuan last year, a year-on-year increase of 20.3%, accounting for about 25% of its mobile revenue.

Guosen Securities communications analyst Yan Ping believes that China Mobile's promotion of LTE and China Telecom's increased subsidies for 3G smartphones are also possible factors in China Unicom's slowing performance. 3G business and overall profitability are in a game, and the development scale of 3G still needs to rely on low-priced smart terminals. With the change of relevant accounting standards, there is more room for subsidies, and the cost side will decline.

China Unicom Chairman Chang Xiaobing said in Shenzhen on March 28 that the growth trend of 3G users will continue to maintain a relatively high growth rate.

Zhang Xiangdong, president of 3G Portal, said in an interview with our reporter: "The 3G era is unstoppable and will bring its value to the fullest. 3G Portal has made many arrangements in the field of large-screen smart phone application development since the end of last year, and will continue to increase investment in this area in 2011. The value created by 3G Portal's platform strategy has also exceeded expectations."

Currently, China Telecom Hong Kong listed company is planning to purchase the 3G network from its parent company China Telecom Group with RMB 90 billion. China Mobile has also made substantial adjustments to its capital investment, increasing the amount of RMB 132.4 billion to about 53% for the construction of infrastructure networks.

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