Cloud services become new source of revenue for Chinese telecom companies

New revenue from the cloud

In the first-half results report meeting, China Mobile Chairman Yang Jie reaffirmed the digital transformation plan from 2019 to transform the company “from telecommunications to information”.

Accordingly, China Mobile's digital transformation revenue outside of traditional voice and data services reached 132.6 billion yuan (US$18.4 billion) in the first half of 2023, representing a year-on-year growth of 19.6% and accounting for 29.3% of the total 452.2 billion yuan in telecommunications service revenue.

Cloud service revenue of three Chinese carriers.

Mobile cloud services played a key role in this revenue segment, growing 80.5% to 42.2 billion yuan in the first half. “Our revenue is not simply ARPU - average revenue per user, the traditional measure of efficiency for telecom operators.

Digitalization and cloud services are seen as new growth drivers for telecom companies, whose businesses are stable and profits are protected by government regulations, but have lost their “luster” and have been seen as a defensive sector in recent years.

China Telecom, a state-owned company, has followed a similar path to China Mobile but with a different name and classification. Revenue from “industrial digitalization” rose 16.7% year over year to 68.8 billion yuan, driving a 7.6% increase in total revenue in the first half. More than two-thirds of the company’s top-line growth came from this segment, led by cloud services, which brought in 45.8 billion yuan, up 63.4%.

While China Telecom lags behind China Mobile in terms of mobile subscribers, 401.9 million compared to 985.3 million as of the end of June 2023, it is a leader in cloud services and has said it will seek to maintain its market position.

“Our annual cloud revenue target of 100 billion yuan remains unchanged,” China Telecom Chairman and CEO Ke Ruiwen said. That represents a 73 percent year-on-year growth. Meanwhile, China Mobile Vice President Zhao Dachun said the company is targeting “more than 80 billion yuan a year” in cloud revenue.

China Unicom, the smallest of the three, is also pinning its hopes on the industry’s “internet revenue.” That segment posted 42.9 billion yuan in the first half, up 16.3 percent year-on-year, far outpacing overall revenue growth of 8.8 percent. Cloud services are again the new growth driver, rising 36.4 percent to 25.5 billion yuan in the first half and targeting more than 50 billion yuan for the full year of 2023.

State-owned enterprise advantages

As competition intensifies, a price war is emerging among Chinese cloud service providers. “Price is a key factor,” said Ke Ruiwen of China Telecom, who acknowledged that he has to continue to cut prices to compete. However, the carrier is confident that its brand strengths, 5G technology, and new service packages will help the business overcome the difficult period.

China Mobile Chairman Yang Jie (center) asserts that the company is shifting "from telecommunications to information"

Meanwhile, China Mobile's Zhao asserts that they have an advantage as a large state-owned corporation directly controlled by the central government.

Michelle Fang, a Hong Kong-based telecoms analyst at Citi, echoed this sentiment, saying that carriers’ enterprise cloud customers are typically “government-oriented and serve state-owned enterprises, and are more focused on security than cost competitiveness.”

Still, state-owned carriers are not without risks. They are bound by overlapping regulations and may lack the flexibility to enforce them in practice.

Edison Lee, an analyst at Jefferies in Hong Kong, pointed to the case of China Unicom, which has had its chairman and CEO positions vacant since July 30. Liu Liehong, who held both positions, resigned when he was appointed head of the National Data Bureau, a newly created agency of the State Council, China’s central government.

(According to Nikkei Asia)

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