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5G standard unification and unlimited flow package war announced the beginning of the network without differentiation, at the turning point of the industry operators and equipment manufacturers are still not suited.
Operators, as their name implies, operate at their core competencies and differentiated operational capabilities are undoubtedly operators’ moats. Especially into the wireless age, operating a wireless network is a capital requirement, high technical barriers to work. Capital and technology double barriers to help operations earn high profits, creating a giant industry.
This also opened up the differentiated operational capabilities among operators and achieved a successful ride with China Mobile.
However, after 4G, the demographic dividend disappeared. The scale growth of traditional telecom has reached the ceiling and generally caught in the dilemma of “increasing revenue without increasing revenue.” In addition, the progress of chip mobile phone technology and the narrowing of the network coverage gap have eroded the differences in operational capabilities The operators are doomed to slaughter in the Red Sea.
However, 5G is an undifferentiated competition from the start.
Let’s take a look at our familiar mobile operator, China Mobile.
China Mobile: finally lower the price, join the price war
Finally, China Mobile lowered the noble head, also introduced an unlimited flow package, but also cheaper than your friends, compared with China Unicom’s ice cream package, almost 50% cheaper. China Mobile’s 1.77 million LTE base station, the world’s largest LTE network, has no backing in the networks of China Unicom (77 million LTE base stations) and China Telecom (1.05 million LTE base stations).
Once, there is almost no 3G network and terminal China Mobile, with 2G GSM network against China Unicom’s 3G WCDMA network, it has not been so reduced its worth.
Why in the “network-leading” 4G era has joined the price war?
Starting in 2016, you will find that more and more people start using numbers from China Telecom and China Unicom. If you change a few years ago, this situation is almost inconceivable.
Did you feel dissatisfied with the price or service of China Mobile in 2011/12? what would you do? Network to China Unicom cheap and still WCDMA technology 3G network? Do not go because often no signal. That to China Telecom, right? China Telecom’s coverage is cheap and cheaper. Can not go ah, have to change the phone. The last great possibility you will still stay in China Mobile, although China Mobile’s 2G network slow, tariffs are expensive.
This is the embodiment of China Mobile’s pricing power. Excellent 2G network (GSM) coverage and rich terminals, giving China Mobile strong pricing power.
In China, deploying a national coverage network with IF (1.8GHz or 2.1GHz) requires about 75-80,000 stations. At the end of 2014, China Unicom only had 430,000 3G base stations. Only 50% of the nation’s basic coverage was completed, and mobile phones often did not have 3G signals. Slow 3G network construction speed, so that China Unicom in up to 5 years time, no advanced technology, no physical network to provide basic services. When China Unicom’s 3G is finally completed in 2015, China Mobile has already deployed 1 million 4G base stations and 3G has completely become history.
Into the LTE era, in 2017, China Unicom’s 4G base station has reached 770,000, coverage and China Mobile has been comparable. Almost all mobile terminals are full Netcom, users can not switch to mobile phones. China Mobile painstakingly operating 20 years of high-end brand image, known as the whole network 300Mbps download speed advantage, this time in the price war Unicom nor parry.
Although the three operators have different web experiences, not all differences can be differentiated. Only the gap between network and terminal coverage, is the operator of the largest point of differentiation and pricing sources.
Not limited to traffic: the most frightening is not the decline in profits, but to smooth the difference
This is not a special case of China. The same story is repeated in the United States.
The United States is a magical country with a land area of 9.37 million square kilometers and actually only 45,000 to 60,000 base station sites. In contrast, China has a site of about 1.9 million sites on 9.6 million square kilometers of land, with 30 times the number of sites in the United States. Consumers still find the coverage is not good, imagine how poor the American people enjoy mobile services, in the United States do not have low-frequency (less than 1GHz) to do the basic coverage, the network simply can not use.
In the 2G / 3G era, only Verizon and AT & T had spectrum resources to build a national coverage network. Verizon is based on 800MHz CDMA and AT & T is based on 900MHz GSM. AT & amp; T’s 3G network, which has a theoretical rate of 21 Mbps, far exceeds 3.1 Mbps of CDMA EVDO Rev. A, but is severely limited by the high frequency band. Poor Sprint and T-mobile have no low-frequency coverage.
Similar to China Unicom’s situation, AT & amp; T advanced technology without good network coverage, with iPhone first mover advantage, also failed to shake Verizon. T-Mobile’s series of vigorous “Uncarrier” price war, can only grab users from Sprint, but failed to pose a threat to the two giants. Coverage of the differences has become the operator of the largest point of differentiation and pricing sources, which is applicable in both China and the United States.
By the 4G era, Verizon, with its bold investment, was the first to support LTE technology and completed nationwide coverage, again establishing the coverage advantage with AT & T following it. The two giants have maintained double-digit revenue growth for several years. Before T-Mobile did not have a low-frequency coverage of the LTE network, T-Mobile’s price war could only draw blood from the Sprint.
However, after 2015, T-Mobile completed the LTE national coverage at 700MHz, and both the Verizon and the AT & T brands were vulnerable. T-Mobile constantly sucked in users with low-cost, unlimited data plans , The revenue of the two giants have started to decline. Finally, Verizon and AT & amp; T have to lower the noble head, also introduced unlimited flow package, expect to stop bleeding.
Network homogeneity, the operator who can not increase the profitability of the US operator EBITDA% began to converge, Verizon and AT & T’s scale advantage is disappearing.
Operators competing to launch unlimited traffic packages, the terrible is not the growth of CAPEX, falling profits, but the fact that the operator’s network has been unable to differentiate.
Operators disappearing moat
As can be seen from the case of China and the United States, what consumers expect is to be connected. The most basic element in realizing this aspiration is network coverage and mobile phones. By doing both, operators can build their own brands and generate premiums. But the brand does not become moat, the price of the temptation, the brand fragile.
Brand is one of the most weak, most ambiguous means of monopoly.
— PayPal co-founder Peter Thiel
The advantages of operators can not be sustained. Once the coverage of competitors reached the same level, operators entered the stage of homogenization competition. Leading operators in order to avoid price wars, the layout of the next generation of new communications technology in advance to re-establish their own moat. At the same time, small operators also want to rewrite the competitive landscape by giving priority to the deployment of new technologies.
South Korea’s LG U + is the use of Korean Telecom 4G construction and 3G upgrade on the hesitancy, the first to complete the 4G coverage of the country, won the Korean Telecom users. Operators in the 3G era to establish the advantages will not be extended to 4G.
To do a good job of network coverage and terminal these two things, was extremely difficult. Want to deploy a well-covered network, research wireless propagation characteristics, planning network capacity, spectrum purchase, site selection, testing and selection of wireless devices and terminals, open network optimization, routine maintenance; coordination of chip manufacturers, terminal manufacturers, to determine technology and Band, buy terminals, build an ecosystem. Choosing a technology path was once a highly risky decision. There are five different technologies in the 2G era. The choice of network technology also includes the pre-judgment of terminals and ecosystems.
Slightly careless, tens of billions of investment has been flooded. During the 3G era, Telstra in Australia and Korea Telecom in South Korea eventually rebuilt WCDMA by dismantling the CDMA network. In the 4G era, the United States Sprint waited determined to dismantle WinMax to build LTE and had no idea how many streets were dumped by other operators.
The unification of communication technologies, the highly integrated chips, and the accumulation of experience in network construction have drastically reduced the “operating threshold” of operators.
In the 2G and 3G era, operators may still be a little swayed by using more advanced CDMA technology or GSM with a more significant scale advantage. May arrive in 4G era, just started sporadically several operators wanted to try WiMax. Thanks to 3GPP, thanks to the ITU, 5G times, operators do not have to choose, on a standard. The chip is highly integrated, a baseband chip can support almost all technologies and all frequency bands. Reduce the difficulty of operation, consumers reduce the threshold of switching network, but also means that operators of the moor narrowing, the competition is completely homogeneous.
Sad 5G, born homogeneity
Although almost all the reports about 5G now are about ultra-high bandwidth and speed. High-frequency 5G can be used to enhance the image of operators, operators are clearly must use the fastest speed in the low-end spectrum to complete the national coverage of 5G to build competitiveness and attract consumers. In fact, Japan’s NTT Docomo has publicly announced that 5G does not require new spectrum, the existing low-mid band spectrum will be used to deploy 5G. Knowing the importance of coverage of the United States T-Mobile can not wait to deploy in the newly purchased 600MHz spectrum 5G.
Experts argue that this is not a true 5G definition of IMT. What about it? The 4G of the 2008 ITU Outlook can provide 1Gbps capacity, and it has not been realized yet after 10 years. Consumers only care about the screen is not displayed 5G full signal.
The same technology, the same terminal, 5G competition from the beginning is the homogenization of competition, the unprecedented homogeneity in the history of the communications industry. However, operators have to cast off because 5G coverage can not lag other operators. Perhaps 5G does not bring much improvement in consumer experience, but consumers will not choose the “previous generation” technology. Regardless of whether 5G can bring 10 billion IOT connections, the face of homogeneity 5G network, operators can only price war, the inevitable result of tens of billions of connections and data flooding can not stop the decline in traditional revenue operators.
If it is really as predicted by some industries, 5G needs trillion investment, 40% more than 4G. That not only will 5G become the last straw to crush carriers, but also a tragedy in the communications industry. In such a slow-growing market, there is no breakthrough in technology, which can not effectively reduce the cost of network construction.
The strategy of relying solely on operations is too flat and operators’ strategies need more depth. Operators should have their own “smart industry”, in the future belongs to the software, operators must have their own software development. Operators need innovation, but innovation is directional. Now operators biggest conflict is the homogenization of the future technology, high investment (CAPEX) can not bring excess returns. Operators need to innovate at lower network costs than ever before.
Operators strategically move forward into the terminal industry has been repeatedly verified not feasible, and now the terminal has been completely personalized products. Moving back to more standardized equipment manufacturing may be a better option for operators.
Digital and AI network management, which are accurate understanding of their network, improve investment accuracy. NTT Docomo in the LTE network, after completing the 4G nationwide coverage, only to increase the capacity of 10% of the base station, competitive KDDI and Japan Softbank. In contrast, China Mobile wealthy, it is estimated that 30% of base stations deployed on the multi-carrier, such investment behavior is too crude. Ren Zhengfei put forward that “in the face of an increasingly large and complex network, artificial intelligence is the most important tool for us to build and manage the network.” However, borrowing the capabilities of suppliers, operators are still not competitive, and operators must Have their own more efficient artificial intelligence.
“De-telecom,” Wei Leping, former director of the CTC’s Technology and Technology Committee, put forward this concept as far back as 2013: “Availability of 99.999%, with unclear sources and high costs.” Only when the demographic dividend was still there, the operators did not realize the urgency. There was not enough industry hardware in 2013 to support “telecommuting.” NTT Docomo has reduced its investment in 4G wireless network by 50% relative to the 3G era by introducing its own R & D C-RAN technology. C-RAN was once also considered a technology that failed to meet the 99.999% stability.
The digitization and AI of network management can reduce the risk of “de-telecomization.” Operators can accurately understand the needs of users and can find out different areas where communication needs are different in the network and gradually “de-telecom” while minimizing the impact on user experience.
The rapid increase in hardware capabilities is the basis for white-boxing or “telecommuting.” In addition to the AT & amp; T investment white box switches, Verizon and NTT Docomo are all investing in white box small cells, and Facebook’s proposed OpenCellular initiative also has operator support. Hardware homogeneity, operators can do the difference in the software.
Further, white-boxed small base stations and software-based core networks provide operators with the cost advantages of expanding into the IT field. LTE and even 5G technology can completely replace WIFI by simplifying sinking to enterprise users or even ordinary users. The wireless technology based on 3GPP technology is better than the WIFI of the IEEE system in terms of quality and security, but the cost is too high to enter the huge market of the domestic civilian.
5G standard unification and unlimited flow package war declared the beginning of the network without differentiation, at the turning point of the industry operators and equipment manufacturers are still not suited to, unwilling to admit such a reality.
But the future belongs to the first to accept the reality and actively change those.
How do you see the upcoming 5G era?