Plight of Transition of China Mobile: Organizational Change Is Imperative
Source: View: 226 Date: 2015-12-08

Anti-corruption storm, speeding up and reducing fees, transformation of Internet, reform of central government-led enterprises, three telecom operators have lived through a rough time of 2015, plus the impact of the external mobile Internet such as OTT (Over the Top), the time of the past "Golden Ten Years" of telecom operators has gone forever. In fact, three telecom operators have met the final options of transition: to the left, is the role of being back to public welfare stated-owned enterprises and pipeline operators; to the right, is to seek a place of "Internet +".

As the world's biggest mobile operator, China Mobile has got a lot of attention in 2015, where is its transition road under the internal and external pressures? How about the effect? What influences does it bring to the industrial chain? In this article, multiple dimensions of China Mobile such as strategic plan, business transition, competitive strength, future way will be deeply analyzed.

World's Biggest 4G Network Has Been Built

After more than one year's development of China Mobile which "Runs ahead", it has built the world's biggest 4G (TD-LTE) network in the first half of 2015. Currently, there has been over 240 million users on net of China Mobile 4G, the penetration rate is close to 30%.

According to the data of the Ministry of Industry and Information Technology, since the second half of 2015, there are over 25 million of China's 4G users newly increased per month, accounting for 60% of global monthly newly increased users.

The main reason lies in the rapid popularity of 4G and the rapid construction of network. In the commercial process of domestic 4G, the construction of 4G network and commercial use of 4G mobile phone are basically synchronous, the market ratio of 4G mobile phone has increased from 1.3% in January 2014 to 83% in September 2015 with only 21 months.

And, on the aspect of 4G mobile phone sales at domestic, the sales ratio of 4G mobile phone of China Mobile has always been above 72%. Meanwhile, the sales price of 4G mobile phone has constantly decreased, the lowest sales price of the mobile phone which is compatible of three kinds of cards respectively from China Telecom, China Unicom, China Mobile, with the network of TD-LTE/TD-SCDMA/GSM, has dropped under 250 RMB currently.

TDD and FDD are two kinds of technological modes of 4G network, there has been 50% of 4G Base Stations adopting TDD technology currently, and, China Mobile is the operator which builds most of TDD Base Stations. According to the plan, by the end of 2015, China Mobile will build over 1.2 million TDD Base Stations, the number surpasses any operator in the world.

After experiencing the fast running of 2G, slow walking of 3G, the 4G of China Mobile is again back to be that "Fast-running Elephant".

Intensifying Decline of Traditional Business

The big ship is hard to turn around, and it is the most appropriate thing to describe the transformation which has been appealed by China Mobile for years.

The rapid popularity of smart mobile phones brings rapid development of mobile Internet, while the telecom operators provide the network with a high rate of speed, they also meet the impact from the emerging businesses.

Among the three operators of China Mobile, China Unicom and China Telecom, China Mobile is most seriously affected by the Mobile Internet OTT enterprises, because the quantity rate of China Mobile phone users accounts for over 70%. Affected by this, the SMS revenue of China Mobile has dropped 0.9% in 2011, increased to 4.8% in 2012, reached 6.5% in 2013, closed to 10% in 2014. In addition to SMS, the voice calls and international roaming have declined with different degrees.

From a long-term point of view, the declining revenue of SMS, MMS, voice business of telecom operators is an irresistible general trend, but the operating revenue of China Mobile doesn't have a proportional increasing to the sharply increasing user data. For example, the data revenue of China Mobile has increased 58.6% in 2013, but the data benefit is much lower than that of voice and SMS as well as MMs, this leads to a sharp decline of profits of China Mobile.

The net profit of China Mobile has been 57.3 billion RMB in the first half of 2015, which decreasing 0.8%. The revenue of data business has reached 151.5 billion RMB, which increasing 24.3% year-on-year, accounted up to 50.6% of the proportion of communication service revenue, and the revenue of wireless Internet business has reached 100.9 billion RMB, with an increase of 40.1% year-on-year, which is the primary driving force of revenue growth.

It is necessary to point out that China Mobile has more than 800 million mobile phone users, but the proportion of 4G users has been less than one third currently, the data increase still hard conceals the decline of traditional business, China Mobile is urgent to transform business.

Transition Encounters Barriers

In the era of 2G, voice and SMS are the main businesses of operators, China Mobile relies on the network effect of voice business to instantaneously grow as the big Mac of domestic mobile communications. With the construction of 3G and development of business market, operators enter into a new phase: the voice business is no longer the mainstream, data management becomes the key point.

In the era of 4G, all businesses of operators are from the data, data is still the rigid demand of growth of network society, however, in the face of telecom industry with increasingly limited development space and the alternative competition from OTT, the telecom operators have to carry out transformation of data management in order to avoid becoming a mere network pipe and doing wedding dress for others.

For this, China Mobile proposes a very clear development way of three curves. The so-called "Three Curves", namely, the first curve is the voice, SMS and MMS of China Mobile, which decreasing at a speed of 15%-20% every year; the second curve is the data management, which mainly relies on the driving of 4G; the third curve is the digital service.

To achieve the development way of three curves, China Mobile makes it clear to transform towards the data management from three aspects of network, terminal and marketing. And, with network construction of more than two hundred billion RMB every year, the construction number of 4G Base Stations of China Mobile has been close to that of origin 2G network with more than twenty years, the population size covers about 85%.

It can be said that the good network base, and development of terminal are succeed with the ripe conditions. For promoting the development of terminal industrial chain, China Mobile specially sets up a terminal company to guide and propel the development of the whole terminal industry. Currently, the whole TD, TD-LTE terminal industrial chains are comparatively perfect, almost all the chips and products of terminal manufacturers support.

The problem is that, in the transition of marketing, China Mobile is always hesitant. It is known by Tencent Technology that, in the interior of China Mobile, it always exists divergence of insisting on the network pipe, or doing intelligent network pipe or opening business just like the Internet. Response to the specific implementation, it is the establishment of professional business company and being apart from the market.

With integration of five content bases of origin reading, music, games, Migu, newly founded by China Mobile, announces to become the integrated development platform of traditional media and emerging media in 2015.

The foundation of Migu Culture Technology Co., Ltd. is the first step of China Mobile to explore professional operation aiming at mobile internet business, as well as a vital step, which has important strategic significance for China Mobile to fully expand the development advantage of 4G, vigorously propel the entrepreneurial layout and innovative development.

The biggest advantage of Migu, also envied by the persons of the same industry who work on the mobile internet media, is that it possesses perfect access platform and related supports. Namely, in the face of CP or SP, all-in-one services can be achieved from the product access, product display and distribution, product landing channel to charging and fees-collecting. Compared to the mobile Internet platform with the mode of most relying on advertising revenue or "Free basic function, paid advanced function", Migu has a unique advantage for the upstream resource providers on how to transform the resources into profits.

For example, China Mobile has a customer group of over 800 million people and network resources with high quality, as well as rich business operation experience, as the biggest television broadcast agency at domestic, CCTV possesses rich content copyright resources. The two sides join hands to build the platform, get through the end-to-end whole-process and whole-network management from the content broadcast control of music, reading, video to the content service, all these heavily impact on the video websites and other content platforms. China Mobile's customer group of over 800 million people is the most enviable fortune for other mobile internet application platforms, also the golden ore for Migu to exert efforts.

Then, how much chance of winning to compete with the Internet giants? First of all, the constraints of operator system cannot be got rid of. According to the idea of China Mobile, it will turn from the current group mode of "Group-Provincial company-Regional and Municipal company" to multiple specialized companies which coexist.

According to the centralized operation principle of Migu, each province, specialized company, subordinate institution cannot privately carry out business operation in the fields of music, video, reading, games, animation, cannot privately carry out cooperation with the third party involved with Migu, or provide fee-collecting for the above fields.

So, it is a big problem of Migu on how to well handle the business cooperation relationship with 31 provinces and local branch companies at all levels. After all, each province has their own cooperation business in order to promote the performance of data, now all these are incorporated into Migu, it needs some time to match up and make expedient compromises.

And plus the Internet company just founded at the last month, although it is the further promotion of business transition of China Mobile after Migu, it appears after three years, what is the relationship with Migu? There has not been a clear answer currently. But one point can be guessed, that is the one which firstly proposes to set up Internet company but falls behind Migu which is prepared with less than a half year, its perplexing relationship and game can be seen.

An insider tells Tencent Technology that , "At the beginning of foundation of the two companies, there is great divergence on personnel allocation and resource affiliation, they don't want to become a subsidiary of the other company, the game is fierce, plus the anti-corruption storm, so the establishment of internet companies delays again and again. Of course, the constraints under the system is also inevitable."

The insider believes that, if the basic environment of existence and development can't be created around the features of new types of businesses, but simply follow the environment of traditional business, the new type of business is hard to succeed.

Future Way Lies in the Reform of Organization and Institution

With the advent of 4.5G and future 5G, the mobile Internet is more popular, the application is more abundant, OTT business will get faster development. One investigation of Ericsson shows that, by 2016, OTT business data will account for 71% of the mobile data, OTT business will bring more and more pressure to the operators in the future, and the video application will become the main driving business.

For China Mobile, on one hand, it needs to constantly enhance the speed promotion and coverage of basic network, on the other hand, it needs to join hands with other enterprises to innovate on the post-paid market of data management.

China Mobile Online Company is almost simultaneously founded with the above Migu and Internet company, this is a key layout of China Mobile on centralized service and professional operation. Besides, the establishment of China Internet Investment Fund Ltd., similar to the previous investment company of China Mobile costs, is also a measure of China Mobile to try to get involved in the mobile internet industry by the way of capital operation.

The reform of organization and institution will become the key field of operators to make reforms in the future, new business and new market mean new opportunity. The insiders believe that the strength and position of China Mobile determine its ability to become and should become the "Shark" in this industry with international competitiveness, but it should have its unique ways to become such a "Shark", do not always carry out discussion around the mode of taking the types of network as core.

"After all, this will be a task unable to be completed to establish effective innovation system in this huge monster, and form rapid, flexible response capability needed by innovation. Because the innovative management practice of modern large company indicates that, must get through the external integration, namely, establish the view of ecological system and idea of "Value chain competition", by optimizing the existence environment of partners, let a group of small "Sharks" with flexible system and rapid response move around China Mobile, in this way, the business innovation road of this huge enterprise will be broader and broader." A senior operator says to Tencent Technology.

But no matter what reform will be, the reform of operator's own internal system and process is the base of all things, for China Mobile, a major taxpayer of the central SOEs, it will not be comprehensively good on this matter, the bitterness and happiness coexist.

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