12 December 2018

Focus on user numbers wrong way to ring up 4G success

Just months after granting 4G mobile service licenses to the three state-owned mobile operators, the Chinese government set out a clear target of having 30 million to 50 million 4G users in the first year of operations.

The new technology will debut in more than 300 cities, and the government will push operators to lower their service fees in order to attract more users, according to an official of the Ministry of Industry and Information Technology, which oversees the nation’s telecommunications market.

If China Mobile (00941.HK), China Telecom (00728.HK) and China Unicom (Hong Kong) (00762.HK) are able to gather 50 million users in just the first year of 4G operations, it is quite likely that they will break the 3G subscriber growth record – the three telcos took three years to amass 200 million 3G users.

And it may not look so difficult compared with the current pace the three telcos are adding 3G customers.

But by just setting its sights on the number of subscribers, the government could be missing the whole point of boosting the industry with the new technology. The sector’s ability to generate jobs and create value is a far more important consideration.

Take the case of China Unicom. After it rolled out the 3G service, the company’s average revenue per user dropped to 77 yuan (US$2.66) in the first half of last year, from 150 yuan level in 2009. During the period, its 3G users jumped to more than 100 million.

The market was expecting higher ARPU after the launch of the high-speed mobile service, but the telcos used cheaper fees to lure customers. The fact that many new subscribers were coming from inner cities and rural areas was the key factor driving such a pricing strategy.

This time around, the government, as well as the whole industry, should focus more on applications and service development to boost the value of the 4G business.

While offering cheaper 4G services could lower the psychological hurdle for existing 2G or 3G users to upgrade, operators should make use of this lower hurdle to encourage users to spend more on a wider range of new services and applications made possible by the faster mobile network.

An intelligent pipeline is one alternative model. Mobile operators can play a proactive role in selecting outstanding applications for users, and in promoting them through tailor-made packages. Data-intensive applications such as online video streaming services, for example, provide a huge potential to enhance the user’s experience as well as the operator’s income. 

Mobile operators can charge both the users and the app developers, thus generating enough revenue to support the heavy costs of providing and maintaining network capacity and quality.

Backed by the ever-decreasing cost of smartphones, with many models fetching less than 1,000 yuan per unit, telcos can encourage phone users to try new apps and services with low-tariff plans. Once users are hooked, they can offer additional services and generate more revenue streams.

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EJ Insight writer

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