China telcos ride digital economy boom

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The surging demand from Chinese businesses for digital transformation and industrial Internet services has become the chief growth driver for telcos, first half filings reveal.

On Tuesday, China Telecom became the latest to hand down a positive first half result, reporting an underlying net profit – discounting a one-off tax gain last year – of 18.3 billion yuan ($US2.7 billion), 12% higher than last year.

China's no. 2 telco grew revenues across the board: total revenue improved 10.5% to 242.3 billion yuan, service revenue rose 8.8%, mobile lifted 6% and broadband access gained 7.1%.

Figure 1: While China's surging digital economy powers telcos' first half earnings, all including China Mobile struggle to boost consumer revenues.
(Source: Sipa US / Alamy Stock Photo)

But the outstanding performer was its industry digitalization business, which grew 19% to 58.9 billion yuan and now brings in as much revenue as the entire fixed broadband portfolio.

Business transformation

The public cloud business more than doubled during the period, while the number of 5G-based B2B projects grew 80% to 1,300, China Telecom said.

Chairman Ke Ruiwen said that the digital economy has become "a stabilizer and an important engine for national economic development," with growth driven by the scale commercialization of new tech and infrastructure and the integration of multiple technologies.

Rivals China Mobile and China Unicom have also reported buoyant first half numbers from digital enterprise services.

China Mobile said digital transformation revenue, which includes its value-added services such as mobile cloud, DICT and IoT, grew 39% and now accounts for 26% of total service revenue.

China Unicom reported a 32% increase in industry Internet sales to 36.9 billion yuan, contributing more than 70% of the company’s incremental revenue. Cloud revenue grew 143% to 18.7 billion yuan.

Customer fatigue

China Mobile boosted first half earnings to 70.3 billion yuan on the back of a 12% hike in revenue, including an 8.4% rise in service revenue. China Unicom posted a net profit of 11.0 billion yuan, up 19.5%.

The downside for all of these operators is the lack of real growth from the consumer business. They've been unable to get more value out of their customers, with mobile and broadband ARPU flat despite the growth in 5G.

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But the gigantic 5G rollouts continue. China Telecom reported building an extra 180,000 5G basestations during the period, taking the total to 870,000 in use.

It now has 384 million mobile subs, of which 232 million are on 5G packages, and 175 million broadband subscribers, with 20.7 million using gigabit services.

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— Robert Clark, contributing editor, special to Light Reading