Development and Reform Commission: It is not desirable to reduce the cost of broadband

On the one hand, users are dissatisfied with the carrier's broadband fee reduction plan. On the other hand, telecom operators face heavy pressure on investment returns. China's ongoing broadband “acceleration and fee reduction” is not as simple as it is on the surface, and it also involves telecommunications. The proposition of sustainable development in the industry. Recently, Shi Wei, Director of the Industrial Division of the National Development and Reform Commission’s Institute of Economic System and Management, suggested that it is not advisable to reduce the cost of cliffs, and that gradual fee optimization is feasible.

Telecom Operators Face Unrecoverable 3G and 4G Investment

The telecom industry has high investment and low returns, and the return period is very long. At present, investment in 3G and 4G by China's three major telecom operators is facing a difficult situation to recover.

In January 2009, China issued 3G licenses and started 3G investment. According to statistics, the three major telecommunications operators generally invest 200 billion yuan (renminbi, the same below) and built the current level of 3G networks.

According to the laws of the telecommunications industry, the payback period for a telecommunications network is approximately 7 to 8 years. Up to now, 3G network construction has just completed six years and no investment has yet been recovered. In December 2013, China issued 4G licenses. For 200 billion yuan of 3G investment, operators will propose a depreciation of 20 billion yuan each year within 10 years, offsetting profits.

Up to now, China Mobile has built more than 700,000 base stations and its investment has reached 200 billion yuan. China Telecom has also invested 40 to 50 billion yuan.

The above investment is still profitable for several years. However, it is overwhelming that network equipment manufacturers including Huawei and ZTE have already started 5G R&D and are expected to implement commercial use by 2020. If China issues 5G licenses in 2023, it will face the dilemma of 4G investment just making money and investing in 5G.

According to the State Council's plan for speed reduction and fee reduction, by 2017, China’s three major telecom operators will invest 1.1 trillion yuan in network infrastructure construction and the scale of investment will be huge.

At the same time, telecommunications service tariffs have continued to decline for many years, and increasing revenues has become the norm. In 2014, operators launched 4G services, and their overall tariff is 30% lower than that of 3G.

The profits of the three major telecom operators gradually decreased. In 2014, China Telecom’s profit was RMB 17.7 billion, which was less than 1%. In the first quarter of 2015, it was rare for the three major telecom operators to experience a collective decline in profits.

“With the continuous advancement of technology and the continuous expansion of users, operators will only reduce the cost of providing various services. Under the pressure of market competition, the tariff level will naturally decline steadily. This is in line with the law of the market. The price cuts will only lead operators to lose their hematopoietic capacity, unable to expand and upgrade the network, and fail to provide normal services to users, Shi Wei said.

Shi Wei said that telecom operators' 3G investment has contributed to the construction of China's communications industry chain, stimulating the rise of Huawei, ZTE and other equipment companies, domestic mobile phone companies, and information service industries. At the same time, it has also stimulated the construction and employment of the economy. Development plays an active role. However, it goes without saying that operators do face difficulties. It is even more important to explore whether tariffs are higher or lower. Under the new normal of mobile Internet, operators can find new development paths by transforming into smart channels.

Universal Service Model Contingency: Increase Government Procurement

According to the data of the International Telecommunication Union, China’s ranking in the comprehensive index of the use and penetration of information and communication technology of the International Telecommunication Union in recent years is basically around the 80th in the world.

The main reason for the slow network speed and high speed is that, according to the analysis of the head of the Ministry of Industry and Information Technology, the market supply is mainly insufficient. In addition, operators encountered sky-high “entry fees” in some communities and public places, which also restricted the upgrading of existing copper cable networks to fiber networks.
In 2014, China introduced the “Broadband China” national strategy, which clarified the strategic positioning of broadband public infrastructure. Broadband has become a national strategic resource and needs to be deployed in advance.

At the same time, broadband construction requires cost investment. Because broadband network construction has the characteristics of high cost, long cycle, and small revenue, the independent development of enterprises alone cannot obviously meet the needs of national broadband construction.

Since 2004, the Ministry of Industry and Information Technology has implemented the village project. So far, on the telephone, a total of 40 billion yuan has been invested, and the proportion of administrative villages nationwide has increased from 88% to 100%. In the “Township-to-Township Broadband”, the cumulative direct investment in the construction of broadband networks exceeds RMB 30 billion, and a total of more than 3,000 townships and more than 140,000 administrative villages have completed the construction of broadband networks. The proportion of broadband access to townships and administrative villages across the country ranges from 90%. 70% jumped to 100% and 91% respectively.

These investments are basically funded by telecom operators themselves. The government's annual special fund for universal service for village-based projects is only 400 million yuan, which is far from making up for the costs of operators.

According to statistics, due to the limited level of economic and social development, there are few communication services in remote rural areas. The proportion of zero-to-zero telephone users is as high as 10%-20%, and communication revenue cannot compensate operation and maintenance costs.

The so-called "universal service" means that anyone must provide telecommunications services that are discriminatory and affordable without any geographical, quality, or tariff. Due to the low rate of return, infrastructure development in high-cost areas is lagging behind. In order to avoid this situation, various governments have introduced certain measures to solve the problem of insufficient investment in infrastructure in local areas.

The country with the fastest network speed in the world --- South Korea established the "Green IT National Strategy" plan in 2004, and the government has invested 70 billion U.S. dollars in the construction of broadband infrastructure. The U.S. government issued a national broadband plan in 2010, and set up a U.S. $7.2 billion broadband support fund and created a new US$4.5 billion annual "Canadian Connections Fund" (CAF) to subsidize the construction and operation of high speed in sparsely populated areas. the Internet.

"For example, in the United States, whether operators are state-owned or privately owned, when universal services are provided, all universal services are built by operators and investments are made by the government," Shi Wei suggested. China should also change the existing universal fund model. Increase government procurement services and promote telecom operators to provide more extensive services.

Shi Wei said that with the development of information applications, the network facilities laid by telecom operators in rural and remote mountainous areas had already played a significant role in promoting the development of emerging industries in rural areas. In the future, the government should adopt a more sustainable approach. Promote the popularization and improvement of rural information infrastructure.

Internet companies should contribute to universal service

Due to the development of the Internet and mobile Internet, the development of Internet application companies has been driven, and even the model of the information service market has undergone tremendous changes. From the past, operators have become the center of providing value-added services as the center, and operators have become "pipeline". Prior to this, Internet companies proposed high network fees, and the actual situation is not the case.

According to annual report data, in 2014, Tencent’s network costs (bandwidth and server custodian fees) accounted for only 7.7% of total costs and 5.4% of operating revenue. Baidu’s two indicators were 7.9% and 5.8%, respectively. 4.2% and 3.6%; while during the same period the operator's network investment accounted for 34.6%, and the network cost accounted for as much as 65% of the total cost (China Telecom as an example).

From the perspective of revenue, operators are much higher than BAT (Baidu, Alibaba, Tencent) three Internet companies, but BAT revenue growth is much higher than the operator. According to the data from the Ministry of Industry and Information Technology, the growth rate of China's communications industry in 2014 was approximately 12.3%, of which basic telecom operators grew by 3.6% (after the change of business operations), and value-added telecommunications (Internet) companies grew by 36%.

Shi Wei said that Internet companies paid a low amount of network occupancy fees, but they consumed a lot of network resources. Therefore, Internet companies and telecom operators have not formed a mutually beneficial symbiosis. This relationship has resulted in an unbalanced investment and income of the two networks, resulting in a heavy burden on the construction and maintenance of operators' networks. This has caused broadband networks in most countries of the world to fail to meet the Internet. The plight of the sharp increase in demand for enterprise applications. If it fails to improve effectively, it will definitely lower the telecom operator's network investment in the long run.

Shi Wei suggested that in face of high investment in the construction of 4G and fiber-optic broadband, operators have become incapable of providing adequate fees to high-interest Internet companies to alleviate the huge amount of network investment funds under the circumstances that national policy support and network construction funds cannot be put in place. Shortages and the acceleration of infrastructure construction have become a way out.

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