If no 35 billion yuan "policy dividend", the three major operators will be plunged into "negative growth"

China's three biggest operators have been releasing their 2014 earnings. Although the three major operators in the report to shareholders pledged: "The business is in good shape", "continue to create profits for shareholders", but the reality is that China Mobile revenue, profit first negative growth, the day of earnings, China Mobile shares fell from HK $104 to HK $100, or 3.3%.

For China Unicom, which has a 5% per cent decline in revenue, its share price fell from 5.5 yuan to 5.17 yuan, or about 6%, in the week following the earnings release. China Telecom's slightly better performance rose 0.9%, net profit grew 0.8%, less than 1%, and the share price grew 1.8% on the day of the earnings release.

In fact, this is the worst financial results for the three operators in recent years. But if the 2014 policy adjustment brought about by the "policy dividend", the three major operators will be plunged into "negative growth."

35 billion yuan "policy dividend"

2014, Sasac to the three major operators issued a "pressure drop sales costs" requirements, the three major operators so significantly compressed sales costs. And the Ministry of Finance on January 1, 2014 to implement the "net settlement of the New Deal", the Chinese telecom, China Unicom to reduce payments to China Mobile net settlement costs.

Earnings showed that in 2014, China Unicom's operating income from last year's 303.7 billion yuan to 288.5 billion yuan, reduced by 5%, profits from 10.29 billion yuan to 11.97 billion yuan, the year-on-year increase of 16.3%. But it needs to be pointed out that, thanks to two policies, China Unicom's net settlement, sales costs, terminal subsidy cost savings in 2014 a total of 11.56 billion yuan in capital expenditure, the policy dividend and its profits basically flat.

2014, due to terminal sales, net settlement cost reduction, China Telecom "other operating costs" from 54.76 billion yuan to 47.52 billion yuan, save the cost of a total of 7.24 billion yuan. Thanks to this, China Telecom achieved a net profit of 17.68 billion yuan, an increase of 0.8%.

China Mobile is also a beneficiary. Although the newly implemented net settlement resulted in a decrease of about 10 billion yuan in the settlement income of China Mobile, the "cost of reducing sales" has saved more money for China Mobile. 2014, its sales cost from 2013 to 91.8 billion yuan to 75.8 billion yuan, the total savings of about 16 billion yuan. Moreover, this does not include savings in the cost of terminal subsidies.

Earnings showed that the cost of China Mobile terminal subsidy was reduced by 28.5%, the channel fee dropped 7.8%, and the advertising cost was reduced by 24.6%, and China Mobile did not disclose its specific cost savings.

However, it needs to be pointed out that the cost of pressure drop sales costs, but also to the operators to create market pressure. At an internal meeting in 2014, China Mobile Chairman Xi pointed out: "In the sales cost of a substantial pressure drop, but also to achieve 4G terminal box customer development goals unchanged, there is great pressure." ”

But Xi thinks, this kind of pressure, actually is also promotes the marketing transformation the opportunity, "the marketing resources investment is very extensive, indeed has the promotion space." We should adjust the direction of marketing resources and improve the efficiency of resource utilization. "2014 1-July, China Mobile sales cost of capital expenditure accounted for 59% of the entire industry, but the user growth accounted for only 29%, marketing marginal income is extremely low."

"Operators are accustomed to ' net-type ' marketing. In the current user saturation situation, this kind of marketing is difficult to meet the development needs. Cheng Dejie, a well-known telecoms analyst, said: "Campus marketing, charging gifts, these methods are no longer applicable." "He told reporters, now the three major operators are doing large data practice, transformation of precision marketing," SASAC's pressure to reduce costs, accelerate the speed of this transition. Operators need to get higher yields through less cost. ”

2014, the "policy dividend" to the telecommunications industry brought about by the cost of more than 34.8 billion yuan, otherwise, China Telecom, Unicom will also have a sharp decline in profits, or even losses.

The "policy dividend" will continue in 2015. According to SASAC requirements, operators need to reduce marketing costs for three consecutive years, a total of about 40 billion yuan. Operators of the operation of the reform is also continuing to promote, in 2015, China Mobile has taken the lead in the three major operators in the NPS (user loyalty) set as the assessment index.

In addition, the landing of the tower will save the operator a capital outlay. Recently, the Ministry of Industry and Information Technology held "to strengthen the construction and sharing, promote the 4G building" of the television conference, Vice Minister of the Ministry of Chang, in the current tower company has received 20多万个 tower construction needs, through the stock resources sharing can build nearly 100,000 towers, only save construction costs more than 20 billion yuan, Also excludes labor costs and later maintenance costs. At the end of October 2014, Wang, chairman of China Telecom in Guangzhou, said: "2015, the Eiffel Tower to all open, we can ' borrow soldiers war ', the need to build the tower can be changed to direct rental, how much money, how much energy, and now in the city center to find a site is not easy. ”

An iron Tower insider told reporters: "This is only the first batch of projects, the whole year, save the construction cost must be more than 40 billion yuan, and the future annual savings of the construction cost will reach at least 50 billion yuan." In addition, operators can also save on depreciation costs, operational costs of capital expenditure. At the meeting, the Ministry of Public Communication has clearly requested the three operators to open the stock resources to the tower company before April 15.

homogenization, price war

But the policy dividend will not change: operators will have to pay huge 4G of construction costs, but the revenue growth brought by 4G may not be able to load the investment.

In 2014, China Mobile, which built 700,004 G base stations all year, spent 80.6 billion yuan on construction costs, with annual capital expenditure of up to 213.5 billion yuan. Its net profit fell to $109.3 billion, or 10.2%, from $121.7 billion in 2013. China Mobile planned to cut spending in 2015, but its annual capital expenditure remained as high as $199.7 billion, of which 4G was invested at $72.2 billion.

Chinese telecom and China Unicom, which harvested 4G licences in February this year, have decided to increase capital investment in order to catch up with China Mobile. Earnings showed that China Telecom 2015 capital expenditure increased from 76.8 billion yuan to 107.8 billion yuan, an increase of 31 billion yuan.

China Unicom did not release the 2015 capital expenditure plan, but China Unicom general manager Yimin at a press conference, in 2015, China Unicom capital expenditure will be controlled within 100 billion yuan, plans to add 355,000 base stations, the total reached 920,000. Its capital expenditure of 84.8 billion yuan in 2014 also means that the capital expenditure of China Unicom will increase by more than 10 billion yuan.

"In the past, these investments require a 5-year payback period," he said. "A China Telecom senior engineer told reporters:" But now, because of increased competition, voice, traffic, broadband are in the depreciation, the need for a longer period of return. ”

At present, three operators of network technology does not exist essential differences, a Shandong telecom engineer told reporters: "According to the current test, in the major cities, the telecommunications network quality and movement of the outdoor network is basically consistent, but the interior is slightly inadequate." "In addition to the approximate ability of the network, terminal differences are shrinking." With Apple, Samsung, Huawei and other mobile phone manufacturers continue to launch the full netcom high-end mobile phones, the current total netcom mobile phone accounted for nearly 30%.

3G era, the network of three operators, terminals have a certain degree of difference. And the 4G era, three basic homogeneity. "A number of operators interviewed told reporters that the three major operators of the current network coverage, terminal maturity is not the essence of difference," the competition means only the price, will be more intense than the 3G era. ”

January 2009, China entered the 3G era. Take China Unicom as an example, at that time 3G user ARPU value (per user average income) up to 141 yuan. But with the competition between operators, by 2013, its ARPU value has dropped to 75.1 yuan, 2014 to 63.6 Yuan. In 2014, China Mobile and China Telecom were 61 yuan and 54 yuan respectively. In only 4 years, the 3G ARPU value was doubled.

According to China Mobile data, 2014, 4G user ARPU value of about 104 yuan. But with telecom, Unicom admission set off a price war, 4G will also quickly reduce prices.

In addition to mobile services, broadband prices are about to shrink. In 2014, China Mobile, which acquired fixed-network licences, also launched a broadband price war in several developed provinces. China Mobile 10M Broadband services, the highest price of not more than 400 yuan/year, and even many city mobile companies have launched a "mobile phone consumption of 88 yuan, 10M broadband free to send" the means of competition. 2014, the broadband service 0 base of China Mobile to harvest more than 10 million broadband users, more than telecom, Unicom broadband users new and new share of more than 50%.

A southern mobile person told reporters: "We are now losing money development, but after the user up, can slowly profit." But broadband prices will not rise in the future. Broadband has been the "cash cow" business of China Telecom and Unicom in 2014, with broadband revenue accounting for about 1/3 of China Telecom's total revenue, and the price war from Mobile will continue to hit revenues and profits in the coming years.

"Operators have to change, on the one hand to find new revenue growth, on the other hand, through management reform to reduce costs." China Telecom senior engineer told reporters, but, he wry smile said "two directions, we can not see hope."

2014, China Mobile set up a number of internet companies, and through the optimization of KPI assessment to drive the company management change. China Telecom is the main development of cloud technology, wing payment and other Internet services, at the same time, developed such as "inverted triangular management system", "Small accounting Unit", "restructuring of centralized, open and internet it architecture" and other internal organizational structure change plan.

But the Chinese telecoms people said: "These internet businesses are ' negative assets ', income is also from the provincial companies to transfer." As for the transformation plan, the operator lacks a group of leaders who have broken wrist spirit, to undertake the transition pains, to face the necessary layoffs, income fluctuations, and the cost of trial and error. ”