In the past five years of 5G commercialization, with the strong support of national policies and the joint efforts of all parties in the industrial chain, 5G in mainland China has developed rapidly and has become an important engine to promote high-quality economic and social development. At present, the mainland has built the world's largest and most technologically advanced 5G network.
By the end of June 2024, the total number of 5G base stations has reached 3.917 million, and the number of 5G mobile phone users has reached 927 million, with the penetration rate of 5G mobile users exceeding 50%. 5G applications have been replicated and promoted on a large scale in the fields of industry, electric power, ports, steel, education, and healthcare, and 5G digital-real integration has expanded in depth, and new applications, new formats, and new models have emerged, effectively helping enterprises improve quality, reduce costs, increase efficiency, and develop green and low-carbon development. At present, 5G has been integrated into 74 categories of the national economy, with more than 94,000 5G industry application cases, more than 30,000 5G virtual private networks, more than 13,000 "5G + Industrial Internet" projects, 300 5G factories, and more than 340 influential industrial Internet platforms.
How does 5G boost telecom revenue growth?
Although the mainland has made great achievements in the construction of 5G networks and accelerated the digital transformation of the economy and society, further analysis can find that the role of 5G in driving the growth of telecom business revenue is not significant, which is mainly reflected in the following three aspects.
First, the driving effect of 5G on the growth of telecom business revenue has gradually weakened. According to the data, in 2019, the revenue growth of mainland telecom business fell to the bottom (as shown in Figure 1), with a revenue growth rate of only 0.5%. Since the issuance of the 5G license in June 2019, the growth rate of telecom business revenue has bottomed out, and the growth rate of telecom business revenue in mainland China has continued to increase in 2020 and 2021, reaching 3.9% and 8.1% respectively. In 2022, the mainland's telecom business revenue will maintain a high growth rate of 8%, and the main driving force for the growth of China's telecom business revenue in the past three years comes from the rapid development of 5G. However, after 2022, although 5G users have maintained rapid growth, the growth rate of telecom service revenue has continued to decline, from 8% in 2022 to 6.2% in 2023, and then further to 3.7% from January to May 2024, indicating that the driving effect of 5G scale development on telecom business revenue growth is gradually weakening.
Second, in the to C market, the development of 5G user scale has not brought about rapid growth in mobile data traffic business revenue. In 2022, the revenue of mobile data traffic business in mainland China will be 639.7 billion yuan, an increase of only 0.3% over the previous year; In 2023, the revenue of mobile data traffic business will be 636.8 billion yuan, a decrease of 0.9% from the previous year; From January to May 2024, the revenue of mobile data traffic business will be 271.7 billion yuan, a year-on-year decrease of 1.9%. From the above data, it can be seen that the revenue of mobile data traffic business in mainland China is showing a downward trend. In the case of the continuous growth of 5G users, the main reasons for the continuous decline in the revenue growth rate of mobile data traffic services are: the limited role of 5G scale development in driving mobile ARPU and the decline in the growth rate of DOU (average monthly traffic of mobile users) year by year. According to the data, the growth rate of DOU will drop from 68.5% in 2019 to 10.9% in 2023, and the growth rate of DOU will further decline to 7.4% from January to May 2024. From the perspective of mobile user ARPU growth, in 2019 and the first quarter of 2024, China Telecom's mobile user ARPU was 45.8 yuan, and the mobile user ARPU did not increase in five years, while China Mobile's mobile user ARPU decreased from 49.1 yuan in 2019 to 47.9 yuan in the first quarter of 2024, a decrease of 2.44%.
Third, in the to B market, the role of 5G in promoting the development of industrial digital services has not yet been fully revealed. In recent years, operators have focused on expanding the 5G vertical industry market, and 5G has accelerated its penetration into various industries and fields, playing an important role in empowering the digital transformation of thousands of industries and promoting the digital development of industries. However, at the same time, it should also be noted that the large-scale development of 5G integrated applications in mainland China is still less than expected. Data shows that there are currently more than 30,000 users in the 5G industry, mainly large enterprises. According to preliminary estimates, the penetration rate of the 5G industry in mainland China is only 6%, which is at a low level and the incremental revenue brought by 5G is small. For example, in 2023, China Mobile's 5G private network revenue will only be 5.4 billion yuan, accounting for only 0.53% of revenue.
Is 5G revenue growth entering a "bottleneck period"?
There are many reasons why 5G does not contribute significantly to the growth of telecom business revenue, which is mainly reflected in the following three aspects.
First, the effective market demand for 5G is insufficient. At present, the majority of enterprises are under great operating pressure, especially the adjustment of the real estate industry and the lack of momentum for the transformation of traditional industries, and the foundation for economic recovery is not yet solid, which determines the lack of digital demand, especially the effective demand for digitalization in the 5G industry, and the investment in digital transformation of enterprises is more rational.
Second, the "scale development dividend" is gradually disappearing. In the past, thanks to the "demographic dividend", the mainland telecommunications industry mainly relied on scale to achieve sustainable and healthy development. Nowadays, the "demographic dividend" is gradually disappearing, and the penetration rate of 5G package users exceeds 80%, and the development model of relying on scale to achieve sustainable growth of business revenue is challenged.
Third, the 5G business model needs to be innovated urgently. On the one hand, 5G products and industry solutions mainly meet the application needs of users for low latency, high bandwidth, and wide connections, which are at the low end of the industrial chain, with low added value of products, and insufficient innovation in platforms, applications, and terminals at the high end of the industrial chain. On the other hand, 5G lacks a diversified profit model and does not perform well in expanding platform-based profit channels.
How to break the situation in 5G development?
In order to further stimulate the demand for 5G applications, expand the diversified revenue sources of 5G, and enhance the role of 5G in driving telecom revenue growth, it is necessary to make efforts from the following four points.
First, multi-directional efforts will be made to effectively expand the demand for 5G applications. In the context of continuous national policies, telecom operators should shoulder their social responsibilities and attract users to use 5G technology by reducing the price of 5G products and solutions, developing 5G standardized products, improving public service platforms, and accelerating the development of 5G RedCap. At the same time, telecom operators have cultivated and created demand for 5G convergence applications by creating benchmark cases in the 5G industry and strengthening the publicity and promotion of benchmark cases.
The second is to realize the transformation from scale development to innovative development. When the scale of 5G development encounters bottlenecks, the 5G development strategy should be adjusted, and the focus should be changed to the direction of innovation, including integrated application innovation, technological innovation, model innovation, terminal innovation, management innovation, and mechanism and system innovation, so as to improve the quality and efficiency of 5G development through innovation.
The third is to accelerate the innovation of 5G converged applications. For the TOC market, telecom operators should focus on improving user value, dig deep into the new characteristics of consumer demand, application scenarios, and video demand, give full play to the advantages of 5G technology, and make efforts to create immersive experiences, entertainment applications, and 5G innovative terminals, build a 5G application ecosystem, improve user experience, and create "killer" applications. For the to B market, with the goal of helping enterprises achieve "improving quality, reducing costs, increasing efficiency and reducing carbon emissions", we should focus on key industries such as industrial manufacturing, digital government, medical care, education, and energy, give full play to the advantages of cloud-network integration and the integration of new-generation digital technologies represented by 5G and AI, and promote the deep integration of 5G and other digital technologies with the real economy. Expand 5G application scenarios and accelerate the commercial implementation of 5G-A; Give full play to the empowering value of data elements, comprehensively improve the supply capacity of 5G integrated application innovation, focus on private network product upgrades, platform construction, terminal development, integrated application innovation and industrial ecological construction, create integrated 5G industry solutions with industry digital platforms as the core, and continue to provide users with after-sales and product upgrade services.
Fourth, expand the diversified profit model of 5G. Facing the to C market, we will carry out user segmentation actions, launch differentiated 5G package services according to the needs of users in different aspects such as speed, scenarios, and experience, accelerate the expansion of new 5G applications, new content, and new services, and further develop the "new blue ocean" of 5G revenue. Facing the to B market, expand the profit model with the platform as the core. In addition to continuing to expand the charging model of 5G private networks, we will further expand the digital platform of the 5G industry, and continuously expand the diversified profit model of the platform by providing charging models such as full-process integrated industry solution project delivery, standardized product promotion, platform functional module ordering, and platform data application services. Further enrich 5G application scenarios and expand the integrated charging model based on 5G application scenarios. At the same time, operators should further improve their awareness of after-sales service and expand their revenue sources by continuously providing services such as network maintenance and product upgrades for industry users.