Is it a benefit or a disadvantage that the price war of NB-IoT modules intensifies the “low-price game” under the new infrastructure?

The industry discussion around the new infrastructure has made the Internet of Things a hot topic and also made the challenges facing the entire market clearer. Among them, price war is obviously one of the most concerned issues in the Internet of Things industry, especially NB-IoT. After the total number of connections of the three major domestic operators exceeded 100 million, market competition has further intensified and prices have been falling.

"At present, the lowest price of NB-IoT modules has dropped to 13.47 yuan." A person from a domestic IoT module manufacturer told Jiwei.com that according to the results of the 2020 NB-IoT IoT module centralized procurement project announced by the Jiangsu Branch of China Telecom Tianyi Telecom Terminal Co., Ltd. in early April, the average winning bid price was 14.5 yuan, with the lowest price being 13.47 yuan and the highest price being 14.8 yuan.

The "low" of 13.47 yuan is relative to the previous price. According to Jiwei.com, from 2017 to 2019, the price of IoT communication modules dropped from 20 US dollars to 5 US dollars. The industry predicts that by the end of this year, the module price may fall even lower. This continued downward trend has become the focus of the current IoT field, and it has become a focus of the industry market that is about to usher in large-scale deployment under the stimulation of "new infrastructure, new IoT".

Why keep lowering prices?

The main reason for the price drop of NB-IoT modules is the rapid growth of network scale, in which operators play a key role in promoting it.

Luo Wei, vice president of Shenzhen Youfang Technology Co., Ltd., told Jiwei.com that for the electronics industry, market size is an important factor affecting prices. "For electronic components, when the market size is small, the prices may be very high, but it does not necessarily mean that you will have high profits, because the manufacturing and procurement costs are very high. However, once the scale is reached, the chip prices will first go down, and then the downstream of the industry chain will gradually catch up." Luo Wei said.

NB-IoT is a typical example of an industry market that has seen a rapid growth in recent years. As the most widely deployed IoT technology in China, NB-IoT is the field in which operators have invested most actively. An operator recently told Jiwei.com that the total number of NB-IoT base stations of the three major operators is close to 1 million, with each operator having more than 10 million connections, two of which have exceeded 40 million, with a total connection scale of more than 100 million, basically completing the coverage of county-level and above urban areas across the country.

At the same time, as the leading force in promoting NB-IoT, operators have also actively participated in the regulation of NB-IoT module prices. Public data shows that since 2017, operators have successively issued communication module subsidy policies. In October 2017, China Telecom gave a subsidy of 30 yuan per unit, which reduced the module price to 36 yuan per unit after the subsidy, and was also called the "first bid in the universe" by the industry; in November 2017, China Mobile announced the NB-IoT 1 billion yuan subsidy module plan at the Global Partner Conference, subsidizing a single module of 46 yuan to 29 yuan, thereby directly driving the rapid increase in module shipments and allowing module prices to drop rapidly.

On the other hand, Luo Wei told Jiwei.com that, like any industry, competition brought about by market expansion is an important reason for the price drop of NB-IoT modules. Yang Yueqi, vice president of Shanghai Yixin Communication, told Jiwei.com that there are currently hundreds of companies in China that make NB-IoT modules, and there are more than a dozen large-scale leading camps. Such a large scale has also led to increasingly fierce competition among companies, so price wars are inevitable.

Are price wars a good thing?

Industry insiders are divided on the pros and cons of the price war.

Luo Wei believes that the price war of NB-IoT modules is inevitable and has a positive impact. First, because the price war is the inevitable result of competition. "When there is only one company, it is possible to monopolize the price. But when many companies start to enter the market and compete, the market cannot maintain an absolutely high price." Luo Wei said that for any industry, the price war has never stopped and has existed from beginning to end. There is no starting point and there will be no end.

At the same time, Luo Wei pointed out that in this context, only companies with strong comprehensive strength can eventually survive in the price competition. "Some companies with relatively simple product lines, weak financial capabilities, small customer bases, and weak bargaining power in the supply chain are not easy to break through and are eliminated." In his view, this is a positive reshuffle and screening for the market.

"After the reshuffle is completed, when small businesses have basically left the market and only a few major players are left, prices will return to a relatively rational level, just like today's home appliance and mobile phone markets." Luo Wei emphasized that this is a basic industry law.

However, Li Qiang, the head of another domestic NB-IoT module company, disagrees with this view. Li Qiang believes that if end users insist on lowering prices, it will do more harm than good to the entire industry. Such price competition is unhealthy. "Only when every link in the industrial chain can make money can the industry continue to develop healthily," Li Qiang said.

In the fifth episode of Jiwei Kaijiang, "NB-IoT and Cat.1 are joining hands to replace 2G IoT", guest Yang Yueqi pointed out that the price of NB-IoT modules has dropped a lot, especially Cat.1. The price of products that used to cost more than 100 yuan has dropped to more than 90 yuan, and then dropped to 70-80 yuan before the domestic modules were developed some time ago, and now it has dropped to 42 yuan. "In fact, this is inverted from the cost of Cat.1 modules, which cost more than 42 yuan," Yang Yueqi pointed out.

NB-IoT is also facing this embarrassment. "The current price war for NB-IoT modules is more like competing for the sake of competition, so the price is artificially lowered." According to Li Qiang's disclosure to Jiwei.com, the current average bidding price of 14.5 yuan per unit by Jiangsu Telecom still allows module companies to make money, because after deducting the cost, there is still a profit of about 3 yuan. But if the price drops to 12-13 yuan, there will be basically no money to be made.

Li Qiang also disagrees with the screening effect of price wars. In his opinion, the industrial chain of the domestic Internet of Things market is very fragmented, and it is difficult to eliminate all competitors. "Unlike to C, NB-IoT is a to B market." Li Qiang pointed out that no matter how low the market price is, some customers will not purchase, but will only choose those with whom they have a good relationship. At the same time, the to B attribute also means that the price information of the industry market looks very transparent, but it is actually not transparent. Many customers will not know the real market situation very well if they are not in the industry. "Therefore, it is impossible to completely eliminate certain companies that are not competitive enough." Li Qiang said.

Industry concerns behind reasonable profits

Li Qiang explained that having enough profit in the industrial chain brings two benefits: first, enterprises can continue to invest in product research and development and continuously improve product quality; second, enterprises have enough gross profit, do not need to cut corners, and can provide better services to customers. Yang Yueqi also admitted to Jiwei.com that compared with price, IoT end users should indeed pay more attention to product quality and service. "If the quality is not up to standard, it is easy to cause rework, and rework is often linked to service." Yang Yueqi said that this often leads to the actual cost of users' expenditures being much higher than the procurement costs saved.

Li Qiang gave an example, assuming that each NB-IoT module only makes one dollar, the final profit is too low, and the labor cost is too high to easily lay off employees, the company will only cut investment in R&D and service links.

Although affected by the epidemic, the shipment volume of NB-IoT modules in the first quarter of this year was greatly affected, and the intensity of the price war also slowed down accordingly. However, Li Qiang told Jiwei.com that under this circumstance, the shipment volume of NB-IoT modules in China in the first quarter of this year still reached 10 million. Compared with the annual shipment volume of 50 million last year, "this shows that the NB-IoT module market has huge growth potential this year." Li Qiang said that the next large domestic NB-IoT module procurement result will be the Zhejiang Telecom centralized procurement in mid-to-late May. At that time, the bidding price will become the focus of the industry and will also affect the price trend of the entire NB-IoT module in the second half of the year.

In this regard, Li Qiang once again called for the industry chain to pay attention to this issue, as price wars will bring many negative consequences, rather than just destroying the opponent and ultimately harming the healthy evolution of the entire industry. According to Li Qiang, the current price of NB-IoT overseas is much higher than that in China, which makes its industry ecology healthier. "The many considerations behind this are worth thinking about for Chinese companies," Li Qiang said.