Performance comparison of the three major operators: China Unicom lags behind while China Mobile dominates

Last week, China's three major telecom operators released their full-year results for 2016. Overall, China Mobile continued to run fast, followed by China Telecom and China Unicom. If nothing unexpected happens, this situation will continue into the upcoming 5G era, but it should be noted that future competition will be more intense than ever before.

Can China Unicom make a comeback?

China Unicom, which was the first to announce its full-year results, had a worrying performance. According to the annual report, China Unicom's operating income in 2016 was 274.2 billion yuan, a year-on-year decrease of 1%; its net profit was 480 million yuan, a year-on-year decrease of 96%, setting the worst record since its listing 15 years ago.

Such performance is expected, as can be seen from the performance in the first three quarters of last year. According to China Unicom, from January to September 2016, its revenue was 207.139 billion yuan, a decrease of 2.3%, and its net profit was 489 million yuan, a decrease of 81.8% compared with 2.69 billion yuan in the same period last year.

As for why there has been a continuous decline, China Unicom said that it was mainly due to the lack of revenue from the sale of towers, increased tower usage fees, and increased investments in energy, property rentals and other costs, which led to a significant increase in network operation and support costs and sales expenses compared to 2015.

From the perspective of market development, China Unicom missed the window of demographic dividend in 4G, and its corresponding network construction and business deployment are lagging behind the other two operators. Although the number of China Unicom's 4G users exceeded 100 million for the first time last year, it is far behind China Mobile and China Telecom. Data shows that in 2016, China Mobile's 4G users reached 535 million, and China Telecom's was 122 million. China Mobile's 4G advantage is fully demonstrated, accounting for 70%.

To make matters worse, China Mobile has also overtaken China Unicom in its traditional advantage in fixed-line broadband business. Although China Mobile entered the fixed-line broadband market relatively late, it has surpassed China Unicom and become the second largest operator in the fixed-line broadband market after China Telecom by taking advantage of its price advantage.

The latest data shows that in 2016, China Telecom had a 45% share of the broadband market, followed by China Mobile with 28% and China Unicom with 27%. China Unicom faces the dual pressure of mobile and fixed network operations.

However, China Unicom Chairman Wang Xiaochu did not show much worry on his face. At the annual performance conference, he said, "China Unicom has indeed not had a good time in recent years. Since 2014, China Unicom has entered a period of negative growth. 2016 was the worst year for performance. Now we have been through three years of hard times.

The implication is that China Unicom hopes to turn losses into profits starting this year. Wang Xiaochu pointed out that China Unicom's network utilization rate still has a lot of room for improvement. At present, the utilization rate of mobile networks is less than 20%, and the utilization rate of fiber-to-the-home networks is about 37%. In Wang Xiaochu's view, the arrival of the 5G era is a key opportunity for the company to turn the tide, and China Unicom will never make the same mistakes as the 4G era again.

According to Tencent Technology, in terms of fixed network, China Unicom has been promoting fiber optic network transformation in 31 provinces and cities across the country since last year, and has now taken the lead in achieving fiber optic network coverage in 10 northern provinces. This year, it will continue to increase the construction of optical broadband and launch the "optical broadband +" strategy, increasing speed without raising prices, and achieving wider coverage (optical broadband access to each household can reach up to 100Mb).

In addition, the industry predicts that the mixed-ownership reform of China Unicom, which has attracted much attention from the industry, is expected to be completed this year. So far, China Unicom has established strategic partnerships with the three BAT companies, covering different business areas such as artificial intelligence, big data, cloud computing, mobile Internet and industrial Internet. At present, it has jointly launched the tariff services of Ant Bao Card, Baidu Dashen Card and Tencent Dawang Card with BAT.

Analysts pointed out that as a "weak" operator, China Unicom has the most open mind. While launching customized traffic products with Internet companies to acquire new users, it has promoted the development capabilities and revenue of 4G users at low incremental costs, and laid the user foundation for the future 5G market.

At present, the final implementation plan of the mixed-ownership reform is still awaiting approval from regulatory authorities, but the operational reforms brought about by the mixed ownership reform will inevitably play an important role in China Unicom's turnaround.

China Telecom grows steadily, unites to fight migration

In China Telecom's own words, "In 2016, the company's performance was gratifying." The financial report shows that China Telecom's operating income in 2016 reached 352.3 billion yuan, a year-on-year increase of 6.4%. Net profit was 18 billion yuan, a year-on-year decrease of 10.2%, and an increase of 11.7% compared with the net profit in 2015, excluding the one-time gain from the sale of tower assets.

Especially in the 4G business, in 2016, China Telecom's net increase in mobile users was 17.1 million, with a total of 215 million users and a market share of 16.2%, up 0.7 percentage points from the end of 2015; the number of 4G users doubled to 122 million, with a penetration rate of 57% and a market share of 16%, up 1.9 percentage points from the previous year; the annual sales of 4G mobile phones exceeded 100 million units, with full network coverage accounting for more than 80%.

Although the voice revenue of mobile business declined by 9.9% year-on-year, the data revenue increased significantly by 23.8%, among which the mobile Internet revenue increased significantly by 42.9%, driving the steady increase of the ARPU value of mobile users, making the overall mobile business revenue reach 137.611 billion yuan, an increase of 10.5% year-on-year.

Driven by the growth of data revenue, China Telecom's fixed-line service revenue reached 172.033 billion yuan in 2016, an increase of 1.9%, which was also better than the performance in 2015. In terms of the two key basic businesses, mobile business and fixed-line business, China Telecom's performance in 2016 was significantly better than that in 2015, laying the foundation for China Telecom's performance in the past year.

In terms of mixed ownership reform, China Telecom is one of the operators that started relatively early, and some of its business bases across the country have already completed mixed ownership, such as reading and video. Yang Jie, chairman of China Telecom, also said at the performance conference that China Telecom is studying mixed ownership reform opportunities at the subsidiary level and is open to introducing various types of shareholders, including Internet companies.

For China Telecom and China Unicom, only by joining forces can they "compete" with China Mobile. Last year, the two operators worked together in network construction and business operations, which was quite effective and also effectively reduced their own network construction costs. Yang Jie said that China Telecom and China Unicom have similar technologies and standards, so they will consider cooperation opportunities wherever it is beneficial to development, without any restrictions, and the goal is to achieve a win-win situation.

China Mobile dominates the market, exacerbating imbalance

China Mobile, the last company to announce its full-year results, is still continuing the story of the elephant running fast.

In 2016, China Mobile's revenue was 708.4 billion yuan, which is the sum of China Unicom and China Telecom. The growth rate of communication service revenue hit a five-year high. The wireless Internet service revenue exceeded the traditional voice, short message and MMS service for the first time. The net profit remained at 100 billion yuan. The number of 4G users has reached 535 million. China Mobile is still the giant in the telecommunications industry.

But China Mobile also faces many problems. Among the three major operators, China Mobile has the strongest profitability, with annual profits exceeding 100 billion yuan. However, in recent years, it has been in an embarrassing situation where its revenue has increased but its profits have decreased. Data shows that China Mobile's profits have been declining since it peaked in 2011, and it was not until last year that it began to improve.

In fact, this is also a common phenomenon among telecom operators including China Mobile in recent years. Internal and external factors such as increased infrastructure investment, business tax reform, speed increase and fee reduction have all posed challenges to their profit growth. In addition, China Mobile is also the operator most severely impacted by the business of OTT Internet companies.

On the other hand, China Mobile's dominance also reflects the continued imbalance in the telecommunications market, and China Mobile has therefore been labeled a monopoly for many years. From the current situation, China Unicom lags behind in 4G and is overtaken in broadband; China Mobile's 4G users are far ahead.

In the 5G era without standard restrictions, China Mobile's leading advantage may further expand, which is obviously not conducive to the healthy development of the entire market.

Zhongtai Securities pointed out that the continued decline in China Unicom's performance and the further imbalance in the domestic telecommunications market competition have further increased the necessity for state-owned enterprises to carry out mixed ownership reform. At the same time, China has begun to fully promote 5G research and development, so 5G is a challenge and an opportunity for operators. Only by finding new profit points and realizing transformation can operators curb the continued decline in performance and backwardness.

A comprehensive analysis of the annual reports of the three major telecom operators shows that the traditional model of telecom operators, which relied mainly on voice and SMS revenue, has undergone a fundamental change. Traffic revenue is rapidly surpassing voice and SMS to become a new growth point, and competition in traffic management will become more intense in the future.

In their annual reports, the three major operators all mentioned that they would reduce capital expenditures and base station construction this year. This shows that the operators are optimizing capital expenditures and actively expanding new businesses, especially reserving funds for 5G construction. It can be foreseen that the competition among the three major telecom operators will usher in a new round of climax in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.