The most recent financial results published by operators in Greater China provide some interesting insights into the mixed results that early 5G services are delivering for mobile operators in all advanced regions.
In Taiwan, two of the three main operators, Chunghwa Telecom and Taiwan Mobile, had contrasting fortunes in the first quarter of 2021. Market leader Chunghwa reported strong growth in revenue and profit, largely driven by 5G, but Taiwan Mobile blamed the burden of 5G capex for a fall in profits.
The differing picture shows the importance of the timing of capex cycles, relative to the launch of new revenue-generating services, and that often favors larger operators that have the greatest scale, and often strong ability to tap into existing assets, such as fiber networks, to reduce the capex spike associated with end-to-end 5G.
Chunghwa reported a 6.4% rise in net income to NT$8.8bn (US$315.5m) on revenues up 4.1% to NT$50.1bn ($1.8bn). Its mobile service revenue, however, fell, which the telco blamed on the pandemic and the shift to fixed-line usage at home. It did, nevertheless, achieve 4% year-on-year growth in revenues in the mobile business, which was attributed to device sales. Chunghwa said 5G now accounted for 39% of total mobile revenue and 36% of subscribers.
“Given the significant progress in 5G adoption and development, we remain optimistic and expect year-over-year growth of our mobile service revenue for the remainder of this year,” said chairman and CEO Chi-Mau Sheih.
Meanwhile, Taiwan Mobile, the number two MNO, reported a profit of NT$2.8bn ($100m), down 15% year-on-year, with operating income and EBITDA down 15% and 3% respectively. However, its revenues were up 11% to NT$35.3bn ($1.3bn), and the company reassured investors that its 5G capex had peaked and overall capex should be halved across this full financial year, compared to fiscal 2020, delivering improved free cashflow.
Another difference between the two operators is that Chunghwa is a traditional telco, while Taiwan Mobile is trying to drive growth through new digital services. Its biggest growth driver since 2019 has been its ecommerce platform Momo, which grew 22% year-on-year in the first quarter. The EBITDA margin in this unit was up by 1.1 points to 5.2% and its sales were almost half of the telco’s total, at NT$18.4bn ($657m).
By contrast, the core mobile services business saw its revenues fall by 2%, and postpaid and blended ARPU fell by 3%, though the MNO says 5G, now it is extensively built out, will start to improve the results soon. It now has 600,000 5G customers, 11% of the total postpaid base, though it is not clear that 5G sign-ups are yet improving ARPU. Meanwhile, the CATV unit grew by 1% despite a 12% boost from broadband.
Taiwan Mobile said it was “currently growing at full speed and expects to further accelerate as our three main growth engines, 5G, Momo and broadband, continue to gain traction. As a result, we are on track to reach our 2021 guidance for consolidated EBITDA”.
In both cases, the Taiwanese operators highlight uncertainty over how far 5G will boost a conventional mobile broadband business, with growth mainly coming from adjacent digital services, fixed broadband/convergence or devices.
In mainland China, the debates about the balance between vast capex spending and monetization are particularly intense. China Mobile and China Unicom recently reported their first quarter results, and by contrast with 2020 performance, they are starting to see ARPU growth attributable to 5G.
China Mobile had 92.76m 5G network customers as of the end of the first quarter, although there are some question marks over how many are actively using 5G. The operator saw its revenues increase by 5.2% year-on-year in Q1, to reach RMB177.7bn, but as at Chungwha, much of the growth came from purchases of 5G devices rather than usage of higher-ARPU services. China Mobile experienced a 67% increase in handset sales revenue in the quarter, reaching RMB20.8bn, as more affordable 5G smartphones reached the market.
China Unicom said its 5G package users increased by 21.02m in the first quarter to reach 91.85m, and it said this was the main factor that drove ARPU up by 11.5% year-on-year to RMB44.6. Mobile service revenue recorded growth of 8.8% to total RMB41.071bn in the quarter.
These are encouraging improvements but they are being achieved on the back of vast investment. According to GlobalData, Chinese operators and their shared infrastructure provider China Tower invested RMB197.3bn ($27.8bn) in 5G technology in 2020. The same analyst firm predicts that China will reach 1.5bn 5G connections by 2025, representing a CAGR of 31.9% between 2020 and 2025.
China Mobile’s capex intensity in 2020 was not reduced by the pandemic and it invested $27.8bn, up 8.9% year-on-year. China Unicom increased its 2020 capex by 20% to reach $10.4bn, while China Telecom increased spending by 9.3% to touch $12.9bn in 2020.
China Mobile has set out a strategy of “promoting digital and intelligent transformation and achieving high-quality development”. This will focus on the core of the “four threes” strategy, an in-depth implementation of the operator’s 5G+ plan.