Recently, China Mobile announced that it would stop selling its long-term 8 yuan and 18 yuan two ultra-low-cost packages, which aroused widespread concern from all walks of life.
Behind this move, it reflects that China Mobile is actively adjusting its package strategy and accelerating its digital transformation with 5G as the core.
As the world's largest telecom operator, China Mobile's consideration of adjusting its package strategy this time is very complicated.
On the one hand, the large-scale commercial use of 5G provides an opportunity for China Mobile to expand its innovative services, and by launching higher price points and richer package combinations, it can better stimulate user demand and achieve continuous revenue growth.
On the other hand, as a new generation of information infrastructure, the construction and operation and maintenance costs of 5G are far higher than those of 4G networks, and it is a realistic demand that China Mobile must face to share part of the cost pressure by increasing the average income of users.
In addition, with the improvement of users' spending power and the emergence of diversified needs, it is also necessary for China Mobile to meet different user groups and provide personalized experience through differentiated packages.
The investment in 5G construction is huge, and China Mobile is facing cost pressure
The primary consideration behind this package adjustment is the pressure on China Mobile to build a 5G network at a high cost.
As a new mobile communication technology, 5G has made a qualitative leap compared with the 4G era, which not only greatly improves the wireless connection rate, but also has key capabilities such as massive connection, high reliability and low latency, which can support unprecedented application scenarios such as intelligent manufacturing, autonomous driving, and virtual reality.
But this qualitative leap also requires unprecedented technological innovation, from modulation and coding methods to antenna design, 5G has achieved major upgrades in all aspects of the communication system, so its construction cost is far greater than that of the 4G era.
The industry estimates that the construction cost of each 5G base station is at least between 30-500,000 yuan, much higher than the 4G base station's about 100,000 yuan.
As China's largest telecom operator, China Mobile is responsible for coordinating nearly 50% of China's mobile subscribers. In order to allow more than 1.3 billion Chinese people to enjoy the ultra-high-speed experience brought by 5G as soon as possible, China Mobile has launched a large-scale 5G network construction.
By the end of 2021, China Mobile's total number of 5G base stations had reached 1.2 million, a net increase of more than 1 million from the end of 2020, basically realizing 5G network coverage in cities above the county level. This high-density 5G buildout is second to none in the world.
But the huge network investment has also put a sharp increase in the pressure on China Mobile's capital expenditure. According to public data, in the first three quarters of 2021, China Mobile's total capital expenditure has reached 171 billion yuan, a year-on-year increase of nearly 20%.
More importantly, as 5G enters the stage of widespread application and deep coverage, China Mobile's investment in network construction will continue to increase.
In the face of such huge capital expenditure pressure, China Mobile must consider a practical issue by increasing the average user income to share part of the 5G construction cost.
This is also an important background factor for China Mobile to shut down low-priced packages and launch more high-priced packages. The low average user income is difficult to provide China Mobile with a financial basis to continue to invest in 5G construction.
The average consumption of users is 78 yuan, and there is still some room for growth
According to the report, the package adjustment mainly affects about 150 million customers of China Mobile, who have chosen packages of 8 yuan and 18 yuan in the past. The average monthly consumption of this customer group is about 78.2 yuan.
Although the average consumption of 78 yuan is still at a low level compared with high-end users, a closer look can also find that the consumption capacity and consumption habits of this group of users are actually upgrading.
Driven by appropriate policies, some users are expected to become "active contributors" to China Mobile's revenue growth.
In fact, China Mobile has taken a series of measures in recent years to guide such customers to gradually upgrade their consumption through marketing methods.
For example, design targeted packages to provide traffic discounts for video users; Health management services for elderly users have been launched. These measures provide an effective way to promote user consumption to a more reasonable level.
Of course, considering the differences in user groups, China Mobile also needs to continue to retain entry-level packages and take care of a certain number of ultra-low-cost sensitive users while promoting consumption upgrades.
Differentiation on the product side is a must for China Mobile to balance the needs of diverse users.
With the opportunity of 5G ahead, China Mobile is embarking on a new journey of digitalization
China Mobile's adjustment of the package strategy is not only a realistic move to actively respond to the pressure of 5G commercialization, but also a strategic choice to comply with the trend of user demand upgrading and expand the space for 5G innovation.
This will promote China Mobile's transformation and upgrading from scale-driven to customer value-driven, while meeting the needs of diverse users, it will also open up new revenue sources and achieve win-win development for the company and customers.