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Securities Times reporter Liu Canbang

With the release of China Telecom's semi-annual report, the first half report of the three major operators has been released. The three operators' revenue, net profit and other major indicators in the first half of the year have achieved steady growth, and emerging businesses represented by industrial digitalization have also achieved good growth.

All three operators stressed the importance of business transformation and upgrading, although there were also pains during this period. For example, some operators experienced a decrease in net operating cash flow and an increase in accounts receivable during the year. In addition, the fact that traditional business growth has reached a ceiling has aroused the operators' vigilance.

In the semi-annual report, the three operators have devoted a lot of attention to computing power and artificial intelligence. They have deployed general computing and intelligent computing capabilities on a large scale, developed general large models and large models for specific industries, and promoted the realization of AI capabilities while increasing related capital expenditures.

Emerging business share increased

Among the three operators, China Mobile continues to lead in terms of revenue and profit. In the first half of the year, China Mobile's operating income was 546.7 billion yuan, a year-on-year increase of 3.0%. The total number of connections exceeded 3.5 billion, a net increase of 150 million. During the same period, China Mobile achieved a net profit of 80.2 billion yuan, a year-on-year increase of 5.3%.

China Telecom ranked second in terms of revenue and profit. In the first half of the year, the company achieved operating revenue of 266 billion yuan, a year-on-year increase of 2.8%, of which service revenue was 246.2 billion yuan, a year-on-year increase of 4.3%. Net profit was 21.8 billion yuan, a year-on-year increase of 8.2%, and non-net profit was 21.7 billion yuan, a year-on-year increase of 6.0%.

China Unicom's operating income in the first half of the year was 197.3 billion yuan, a year-on-year increase of 2.9%. Net profit was 6 billion yuan, a year-on-year increase of 10.9%, achieving double-digit growth for eight consecutive years.

Some of the operators' new businesses performed well. For example, China Mobile's 5G private network revenue in the first half of the year reached 3.9 billion yuan, a year-on-year increase of 53.7%, the cumulative contract value of digital government projects exceeded 12.6 billion yuan, a year-on-year increase of 13.8%, and digital content revenue reached 14.5 billion yuan, a year-on-year increase of 11.3%.

China Telecom's industry digitalization revenue in the first half of the year reached 73.7 billion yuan, a year-on-year increase of 7.2%, and Tianyi Cloud's revenue reached 55.2 billion yuan, a year-on-year increase of 20.4%. China Unicom's Unicom Cloud achieved revenue of 31.7 billion yuan, a year-on-year increase of 24.3%, and data services also achieved revenue of 3.2 billion yuan, a year-on-year increase of 8.6%.

As emerging businesses gain more and more share, operators are also facing new challenges. For example, China Mobile's net cash flow from operating activities in the first half of the year was 131.4 billion yuan, while in the same period of 2023 it was 160.5 billion yuan, a year-on-year decrease of 18.13%.

Regarding this change, Li Ronghua, executive director and chief financial officer of China Mobile, said that under the current environment, the company's government and enterprise business payment collection progress has slowed down, and the characteristic of government and enterprise customers is to settle accounts at the end of the year, which has led to a rapid increase in the company's accounts receivable as of the first half of the year, which will fall by the end of the year; at the same time, in order to support the upstream and downstream industrial chains to build a good ecology, China Mobile's external payment progress is relatively fast. This round trip has led to the above-mentioned decline in cash flow.

The industry is optimistic about the development of emerging businesses of operators. Liang Chengjia, chief analyst of the communications industry at China Merchants Securities, told reporters that since last year, the three major operators have comprehensively increased their layout in key emerging industries and future industries such as 5G private networks, big data, AI big models, satellite Internet, 5G-A, low-altitude economy, and quantum technology. These fields generally have high entry barriers and require a large amount of R&D investment and resource accumulation in the early stage. The three major operators can achieve good synergy with the key industries of new quality productivity with their deep accumulation in cloud network computing, and take the lead and dominant position in the layout of key industries of new quality productivity.

Traditional business has hidden concerns

Judging from the semi-annual reports of the three major operators, the basic situation remains stable and the new business is also impressive, but the changes in some major indicators have also attracted the attention of investors. For example, China Mobile's earnings before interest, taxes, depreciation and amortization (EBITDA) in the first half of the year was 182.27 billion yuan, a year-on-year decrease of 0.6%, and the EBITDA rate was 33.3%, a year-on-year decrease of 1.3 percentage points. In addition, the company's mobile business ARPU (average revenue per user per month) also dropped from 52.4 yuan to 51 yuan, a decrease of about 2.67%.

Regarding the decline in ARPU of mobile business, Zhang Dong, deputy general manager of China Mobile, gave a detailed explanation. There are two main reasons. First, the traditional driving force of growth driven by scale is no longer sufficient, and now it is necessary to transition from reaping dividends to creating dividends; second, the growth of traffic is also slowing down, and traffic plays a decisive role in the ARPU of individual users.

According to Zhang Dong, there are two reasons for the slowdown in traffic growth. First, the weekly online time of users has stabilized at around 26 hours. Second, the market for high-traffic products needs to be further cultivated, such as cloud phones, cloud computers, naked-eye 3D, and large video products. In addition, changes in mobile Internet coding technology, the development of the home market, people-car-home and other scenarios, and the emergence of high-traffic cards in society have all had an adverse impact on traffic growth, such as diversion. "Under such circumstances, China Mobile insisted on reasonable growth in quantity and effective improvement in quality, and did not blindly respond to vicious competition."

At the performance briefing after the disclosure of the semi-annual reports of the three major operators, the statements made by the operators' heads all showed a sense of urgency for reform and transformation and upgrading.

Yang Jie, Chairman of China Mobile, pointed out that the information service market is showing new changes. On the demand side, traditional communication demand is becoming more saturated, voice and text messages are experiencing negative growth year after year, and even traffic revenue is also showing negative growth, and its driving effect is weakening. However, new potential information service demand needs to be further explored and stimulated; on the supply side, traditional growth drivers such as wireless Internet access, ICT, and DICT of operators have also weakened, and it will take time to cultivate new drivers such as AI. "In the face of this development trend, we need to continuously take new transformation and upgrading measures."

China Telecom Chairman Ke Ruiwen also mentioned China Telecom's considerations for reform. He believes that in the past, operators lacked platform capabilities to provide professional services such as cloud, AI, and quantum security. The strongest provincial and municipal companies, whose organizational processes were mainly used to sell and provide standardized services and products, can no longer fully adapt to the development needs of comprehensive information services.

China Unicom Chairman Chen Zhongyue's statement on the current situation faced by operators in the transformation of new and old kinetic energy is also very representative. He mentioned that the network communication business is the fundamentals of the company's operations, accounting for three-quarters of the main revenue, playing a stabilizing and supporting role. The computing network and digital intelligence business is the growth pole of development, accounting for a quarter of the main revenue, playing a role in expanding the market.

Continue to deploy computing power and AI

There is no doubt that computing power network deployment and the promotion of artificial intelligence applications and capability deployment are the key areas that telecom operators continue to focus on. In the semi-annual reports, the three operators have devoted a lot of space to computing power and artificial intelligence.

China Mobile introduced that the company's general computing power scale has reached 8.2EFLOPS, and the intelligent computing power scale has reached 19.6EFLOPS. At the same time, the "N+X" multi-level, full-coverage intelligent computing capability layout has been continuously improved, and the first batch of 13 intelligent computing center nodes in Beijing-Tianjin-Hebei and other regions have been put into production; the world's first largest and most widely covered 400G all-optical backbone network and the "1-5-20ms" three-level low-latency computing service circle have been built.

In terms of "AI+", China Telecom's "Xiran" integrated intelligent computing service capabilities have connected to 39 computing partners with a total of 22EFLOPS of various intelligent computing powers. Tianyi Cloud has comprehensively upgraded its product and ecological matrix, entering a new stage of development of intelligent cloud.

China Unicom's computing power and artificial intelligence-related businesses also grew rapidly. In the first half of the year, the company achieved breakthroughs in both computing power scale and product capabilities; it also achieved iterations of the Yuanjing big model system, pushing the parameter magnitude from hundreds of billions to trillions; it accelerated model application, forming more than 35 industry big models, enabling initial results in urban governance, economic operation and other fields.

Yang Jie said that one of the focuses of China Mobile's "AI+" action is to give full play to the scale effect. In his opinion, with the growth of computing power and data, the performance of large models will show exponential growth, so it is necessary to give full play to the scale effect of AI in technical capabilities. To this end, China Mobile is promoting "three tens of thousands". The first is the ten-thousand-card intelligent computing cluster, which has now been put into operation; the second is trillion-level token data, 5 trillion data has been invested in training, and more than 10 trillion data will be gradually invested in the future; the third is the trillion-parameter large model.

Another manifestation of operators' increased investment in computing power and artificial intelligence is capital investment. "In the first half of the year, the company's capital expenditure increased by 13.5%, which seems to be inconsistent with other indicators, but we still have to invest, especially in the first half of the year, the intelligent computing increased by 11EFLOPS, and a considerable part of the investment was used here." Ke Ruiwen said that although the big model will not have much direct commercial realization in the short term, the leading artificial intelligence companies will be very passive if they do not have big model research and development and their own Wanka clusters.

Liang Chengjia said that the construction of computing power infrastructure will be an important foundation for the continued growth of the cloud business of the three major operators. On the one hand, the construction of computing power infrastructure will promote the intelligent development of cloud business, especially in the era of big models, which has put forward new requirements for public cloud service providers. It is necessary to provide customers with computing power support, training and promotion tools, operation and maintenance tools, multi-party computing power scheduling and other services through the construction of computing power infrastructure; on the other hand, computing power business will also continue to increase the scale of operators' revenue, and AI-related services in the era of big models will effectively consolidate the core competitiveness of cloud business.