5G is far less successful than 4G, and operators do not have high expectations for 5.5G, or the thunder is loud but the raindrops are small
08/26 2024
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Recently, the industry has started hyping up 5.5G again. However, despite the loud voices of 5.5G operators, their investments in 5.5G are relatively conservative. Executives at China Mobile stated that they would quickly deploy 5.5G in 300 cities, but mentioned an investment of approximately 1.5 billion yuan. Executives at China Telecom indicated that there were no plans to significantly increase investments in 5.5G.
Operators' conservative attitude towards 5.5G stems from the fact that the success of 5G, despite huge investments, has fallen far short of expectations, and some would even argue that it has been less successful than 4G. Data disclosed by the Ministry of Industry and Information Technology (MIIT) shows that since the commercialization of 4G in 2014, operators' data traffic revenue has maintained an annual growth rate of nearly 30%. However, after the commercialization of 5G, the revenue growth of the three major operators' traffic has remained around 3%, indicating increased volume but no corresponding increase in revenue.
In fact, the increase in operators' traffic revenue after the commercialization of 5G was also due to various marketing tactics employed by operators to encourage users to switch to 5G packages. The prices of 5G packages are significantly higher than those of 4G packages. Early 5G packages generally cost over 100 yuan, and while prices have declined in recent years, 5G packages offered in operators' stores typically start at over 59 yuan, much higher than the low tens of yuan in the 4G era. This has led to widespread dissatisfaction among users.
Even after users were "tricked" into upgrading to 5G packages through various means, many of them continue to use 4G phones and networks. Operators report over 1.3 billion 5G package subscribers, but MIIT data reveals that only slightly more than 800 million users actually use 5G networks. More than 500 million users who have subscribed to 5G packages are still not using 5G networks. If we add in users who have not upgraded to 5G packages, roughly half of China's population, or around 800 million people, are not using 5G networks.
In contrast, when operators commercialized 4G, users proactively adopted 4G networks. Back then, 3G was essentially a transitional technology, and a significant number of users were still using 2G. The improved signal strength and internet experience of 4G networks were a significant upgrade, akin to moving from a cart to a car. Coupled with affordable 4G packages, a large number of users quickly embraced 4G networks, generating substantial revenue for operators.
Currently, the industry's promotion of 5.5G follows a similar pattern to that of 5G, emphasizing industry applications and targeting the enterprise market. However, 5G has been commercially available for five years now, and the enterprise market has not developed smoothly. Operators' revenue primarily comes from serving individuals, as evidenced by China Mobile's earnings, which show that mobile phone users contribute nearly half of its revenue, while home broadband users account for 20%. Together, these two segments account for over 70% of the company's revenue.
Regarding the enterprise market, operators' most successful venture has been in the Internet of Things (IoT), with over 1.4 billion IoT users. However, the average revenue per user (ARPU) for IoT users is just over 1 yuan, contributing less than 2% of total revenue, far from comparable to the individual user market.
The telecommunications industry emphasizes applications such as telemedicine and port automation, but operators' financial reports show negligible revenue from these sectors, leading to skepticism and reluctance to invest heavily in industry applications. Coupled with the lessons learned from 5G, operators are even less inclined to invest significantly in 5.5G.
In terms of industry applications, private enterprises have already achieved success. For example, logistics companies had already established large-scale automated sorting systems in their distribution centers before the commercialization of 5G. These systems utilize robots for handling, and communication relies on free WiFi, which is understandable given that cost is a top priority for businesses. For every penny spent, companies carefully weigh the options, opting for low-cost communication methods like wired connections or WiFi over expensive 5G solutions.
Given the current state of the enterprise market, operators are once again facing stagnation in revenue growth. In the first half of the year, China Mobile, China Telecom, and China Unicom reported revenue growth of 3.0%, 2.8%, and 2.9%, respectively, indicating a significant slowdown. Operators must now carefully manage their finances, and given the lessons learned from 5G commercialization, they are taking a cautious approach to 5.5G investments. While they may join in the chorus of promotion, actual financial commitments will require careful consideration.
