On April 22, 2014, the latest financial report released by China Mobile showed that in the first quarter of 2014, China Mobile’s net profit was RMB 25.2 billion, down 9.4% year-on-year. The 2013 annual report released by China Mobile showed that its net profit fell by 5.2% year-on-year, the first year-on-year decline in 14 years. Last Friday, Mr. Wang Yunhui published an article entitled "China Mobile has arrived in the winter". In this article, the author believes that China Mobile's profits will further decline due to various factors including OTT. The construction of 4G will not only become the savior of China Mobile, but will speed up the replacement of OTT business.
I am against this view. Although the profit of mobile has declined for the first time in 14 years, it is almost too sloppy to rely on this point to conclude that the mobile winter has arrived. To find out if the elephant moving is tired, we must first find the reason for the decline in mobile profits.
Through the earnings report released by China Mobile, it is not difficult to find that the decline in mobile profits will be mainly due to the increase in investment in the past two years. Since 2012, Mobile has invested a large amount of money in the construction of the TD-LTE trial network, and even built 200,000 base stations before the issuance of 4G licenses. After the issuance of the 4G license, the mobile invested more funds to build the TD-LTE network and subsidized the TD-LTE terminal. Not only that, but at the same time as the issuance of 4G licenses, China Mobile also obtained the qualification for the operation of fixed communication services. In order to make a difference in the field of broadband, mobile has also made huge subsidies for broadband services. It is the huge investment in 4G networks, 4G terminals and broadband services that is the main reason for the decline in mobile profits.
Then someone has to ask, why is mobile going to invest in these three businesses? We know that after the 3G license was issued, Mobile obtained an immature TD-SCDMA license. Due to technical limitations, the performance of mobile in the 3G era is not as good as the other two operators. The slow speed of the network and the poor terminal has always been a pain in the mobile heart. After the TD-LTE license was issued, the mobile finally got a chance to counter the opponent. In order to take advantage of the competition, it is especially important to invest heavily in building a well-covered 4G network. Not only that, in the early stage of 4G promotion, the price of terminals is generally higher. In order to seize the market and lower the threshold for consumers to use, mobile must subsidize 4G terminals. At the same time, in order to reduce the impact of competitors, mobile spending huge sums of money to subsidize broadband services, using low-cost broadband to effectively divert competitors' broadband users and reduce their cash flow. In this way, the reason why the move will lose profits is actually a big game in the next game.
Investing hundreds of billions of dollars, if 4G can not become the savior of China Mobile, it is obviously a bit unreasonable. Although the OTT business has had a certain impact on the profit of mobile, the impact is far from being imagined. We know that the OTT service represented by WeChat mainly diverts the operator's voice and SMS revenue. In the 2G era, when voice and SMS revenue accounted for more than 80% of the total revenue of operators, WeChat has a great impact on operators' revenue. However, in the 3G era, the revenue of data services surpassed voice and SMS as the main part of the operator's revenue. Although the OTT business diverted the revenue of voice and text messages, it led to the growth of data services. The growth of this part of the income, although not completely offset the decline in voice and SMS revenue, has successfully slowed down the momentum of operator profit decline. In the 4G era, data services have become the main source of revenue for operators. As long as you choose the 4G package of the specified grade, many foreign operators will even give unlimited voice services. At this time, although OTT can divert some voices and text messages, the impact is extremely limited. Taking advantage of the high bandwidth of 4G networks, operators can cooperate with more OTTs to provide differentiated data services using intelligent pipeline technology to increase the value of traffic. A common example is video-directed traffic packets. Video companies buy certain traffic from operators, and their services are freely available to consumers on the package. As long as certain conditions are met (such as watching a certain length of time), consumers can use this traffic pack to watch video programs for free. Through such cooperation, operators, OTT companies and advertisers have achieved a win-win situation.
In this way, 4G can not only become a savior of China Mobile, but also promote the development of the entire communications industry. As people's living standards improve, people's spending in the field of communications will continue to increase. Whether it is Weibo WeChat or video taxis, more and more new businesses are stimulating people's demand for data services. Through cooperation with OTT companies, operators including mobile can provide consumers with more abundant communication services to meet the growing needs of people, all of which will generate considerable profits. Therefore, I believe that between the operators and OTT companies in the 4G era, there is more cooperation than competition, and this is beneficial to both parties. With the improvement of 4G network construction and the decline of 4G terminal costs, the decline of mobile profits will become history. China Mobile has not only failed in the winter, but will also quickly recover its vitality in a few years and re-lead the entire communications industry. The current phenomenon of falling profits is only a temporary phenomenon, and there is no need to be excessively pessimistic.
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