MWC Shanghai: Consumer focused telcos are treading on thin ice – China Telecom

We are paraphrasing with the headline, but the message from Lui Aili, President of China Telecom was very simple; evolve from a consumer focused business or struggle.

To demonstrate this message, Aili used a bowl of soup as an example. At the beginning the bowl of soup is full, but every time it is nudged a little spills out. Keeping the bowl steady is impossible, therefore the volume of soup will always be decreasing. The volume of soup is the total revenues in the telco industry, while the nudging of the bowl is the constant battle for consumer subscriptions.

In China, mobile subscriptions already exceed 100% of the population. It is an incredibly saturated market, with little room to grow. There might be more consumers entering into the dual-SIM lifestyle, but this is already a trend which has been developing for some time. Relating this back to the analogy, the bowl is unlikely to get any bigger any time soon, therefore the volume of soup is also unlikely to increase.

This is the challenge with the consumer facing business. Every time a telco steals a customer (nudges the bowl), the monthly subscription of that user also decreases. When this happens numerous times, the total amount of revenue in the industry gradually decreases (soup spills out of the bowl). Undercutting current providers is the primary way in which telcos gain new subscriptions, and it does not look like there is grounds to justify an increase in ARPU right now. This might change with the introduction of 5G subscriptions, but that remains to be seen.

This is one challenge for the industry, the total revenues are getting smaller, but parallel to this, the demands of the consumer are also increasing. Aili points to global trends of increased data consumption as a worrying sign. Delivering on these expectations, limitless data tariffs are starting to become the norm nowadays, is an expensive business. With this in mind, focusing on the consumer connectivity business is a slow erosion of revenues.

The ambition of China Telecom is a simply one; as it stands it owns the pipeline of connectivity, but the future is all about owning the platform and content as well. In the household, this looks like delivering connectivity, but also the smart home platform which manages applications and products, but also content in the entertainment world. While it might seem like a simple point to make, there still are telcos out there striving to dominate consumer connectivity alone; with the soup bowl gradually emptying, and increasingly becoming more expensive to maintain, should this be deemed a sensible business model?

China Telecom doesn’t want to be a telco anymore, the ambition here is to be an intelligent services company, sounding very similar to cousins in the OTT world.