Recently, in the context of the Sino-US trade war, Ministry of Industry and Information Technology of the People's Republic of China and the SASAC (State-owned Assets Supervision and Administration Commission)jointly issued that accelerating the development of 5G industrial technologies.
From the national level, investment in the 5G industry will have a certain role in promoting the entire communications industry. In the medium and long term, the technical and market characteristics of 5G will be destined to allow three operators to enter into homogenized services and low-price competition, which will further reduce the profitability of downstream companies. It may even trigger the collapse and transformation of some communications companies.
We can see the impact of the 5G deployment on operators and their downstream industries from four perspectives.
First, the operator's revenue has approached the ceiling: From China Mobile’s 2017 financial report, we can see that the penetration rate of China Mobile's 4G users is already close to 70%, which is close to the number of 2G users and the APPU (average revenue per user) growth rate has been ±5％ for the past few years. The main reason is that since 2015, user data traffic usage has increased by 5 times, and the per-user traffic usage proportion has reached 54%, while voice Usage has dropped to 25%, and traffic charges have been hit by Unicom's "ice cream" and other unlimited packages. The traffic of China Mobile's three operators is in the trend of price reduction in the future. Simply put, the number of mobile users will increase to the ceiling in the future, and the ARRU value will not change or decrease. That is to say, in the era of 5G, the revenue growth of operators in the future is basically weak.
Second, 5G technology will reduce the cost of investment: 3GPP will specify that the future 5G network will be a network first, there will no longer be 2G-4G multiple protocols coexistence, at the same time, due to advances in technology, the number of vertical nodes in the network has been reduced, that is to say, the investment in equipment and project maintenance in the future 5G construction will be reduced. According to Japan's NTT Docomo estimates, in the future, 5G adoption of new technologies will reduce operator investment costs to 50% of the 4G era, which will greatly affect the number of orders and revenues of downstream equipment vendors and service providers.
Third, a single standard of 5G terminal will compress the mobile terminal market: 5G terminals will have only one unified standard, and mobile phone users will not need to differentiate mobile phones according to different operators. For example, if you go to buy a 5G iPhone, you do not need to consult this mobile phone is to support Mobile, or Telecom, or Unicom. According to the "China Mobile Phone Market Operation Analysis Report" of the China Institute of Information and Communications, as of the first quarter of 2018, China's mobile phone sales have been continuously negatively increased for 13 months, and sales in March 2018 have also dropped by 27% year-on-year. From the sales of mobile phones can fully explain the user's saturation.If the 5G standard is to be unified in the future, it will only further reduce the market size of the entire mobile phone sales.
Fourth, operators will lose the user's bundling rights in the futher: After 5G, operators will vigorously promote esim cards (embedded sim cards). Users' mobile phones will be directly embedded in sim cards in the future. Users only need to choose the operator through software according to their own needs. Such a seemingly small technological change will possibly change the business model of the entire communications operator. Individual users will no longer be bound by a single operator. It is conceivable that future mobile phones or APP portals will hijack the users' rights for chosing operators, the user may be in the situation of no perception, mobile phones and APP will automatically help users choose the current network with lowest cost and better signal,and China Mobile’s advantage of attracting users by its coverage will be weakened. If China Mobile can't converge on price in line with other two operators, it is very likely that future users will use the low-cost carrier network (or wifi) in a fixed place most of the time, and will only choose China Moblie if the signal is not good for some time. Therefore, in the future 5G era, the three operators can only compete on homogenized low-price networks, thereby further reducing profits.
Compared with the U.S. communications carrier market, the U.S. is currently entering the era of operators oligopoly. The profit rates of the three largest operators, Verizon, AT&T, and T-Mobile, have gradually converged in recent years. Like China, three operators have gradually introduced unlimited packages. According to estimates of US operators, after entering 5G, the profitability of China's three operators will further convergence, but also will further reduce the network construction investment.