In the first half of 2020, the Company proactively responded to the impact of the COVID-19 epidemic (the “Epidemic”), while actively embracing technological integration and innovation. Grasping the precious opportunities emerging from the accelerating development of the digital economy, the Company, in accordance with its customer-oriented principles, expanded its integrated information services including 5G and cloud services by unleashing its edges in new infrastructure resources. The Company deepened Cloudification reform, built up the digitalised platform and laid out plan for digital transformation, to speed up the shift of development impetus, promote the comprehensive enhancement of quality and efficiency, and push forward the high-quality development. As a result, the Company’s operating results remained solid, continuing to take concrete steps in the new journey towards integrated intelligent information services.
In the first half of 2020, operating revenues of the Company amounted to RMB193.8 billion, representing an increase of 1.7% compared to the same period last year. Service revenues1 amounted to RMB187.1 billion, representing an increase of 2.5% compared to the same period last year. Of which, mobile service revenues amounted to approximately RMB90.5 billion, representing an increase of 2.5% over the same period last year with growth rate maintaining the leading position in the industry. Wireline service revenues amounted to RMB96.6 billion, representing an increase of 2.4% over the same period last year. EBITDA2 amounted to approximately RMB63.2 billion, representing a decline of 0.2% over the same period last year. Net profit3 amounted to RMB13.9 billion, representing an increase of 0.3% over the same period last year, while basic earnings per share were RMB0.172. Capital expenditure was RMB43.1 billion and free cash flow4 was approximately RMB9.5 billion.
Taking shareholders’ returns into consideration, alongside the Company’s profitability, cash flow level and capital needs for future development, the Board of Directors has decided not to pay an interim dividend this year. The Board of Directors believes that the Company will continue its efforts to create good value for its shareholders. The Board of Directors will proactively consider the demand for shareholders’ returns when evaluating the final dividend proposal from a comprehensive perspective, which will be proposed to the shareholders’ general meeting accordingly.
In the first half of 2020, the sudden outbreak of the Epidemic has impacted and challenged the Company’s operation and development, while at the same time, also spawning new informatisation demand from the society. The Company proactively responded to the pressures while fully riding the trends of cyberisation, intelligentisation and digitalisation, both in production and daily life. The Company accelerated 5G scale commercialisation, expanded integrated information services and strived to push forward the scale development with effectiveness. As a result, the Company’s operating results have improved month by month and the effectiveness of its customer-oriented value management system was pronounced.
Scale expansion led by 5G, subscriber value stabilised and enhanced. The Company leveraged benefits of network co-building and co-sharing, quickly launched 5G networks with contiguous coverage in more than 50 key cities and took the lead in achieving industry- leading 5G network speed for commercial use. Focusing on applications such as AR/VR, cloud gaming and ultra HD, the Company carried out extensive innovative cooperation, introduced more than a thousand of ultra HD and VR video content, and launched hundreds of cloud games. The Company also released “e-Surfing Cloud AR” products, created a variety of VR live streaming content, including the “Savouring China on Cloud”. We promoted value enhancement of our individual customers by continuous promotion of the 5G membership service model of “5G + Privileges + Applications”, which propelled the upgrade of 4G users. This resulted in a promising start of our 5G service with our mobile market position being further consolidated and enhanced.
In the first half of the year, the total number of the Company’s mobile subscribers reached 343 million, representing a net addition of 7.90 million. The number of 5G package subscribers reached 37.84 million. As the number of subscribers for 5G applications, such as e-Surfing ultra HD, cloud gaming and cloud VR, increased rapidly, our 5G service continuously drove the growth of mobile subscribers’ value. Our mobile ARPU has stabilised and increased compared to that of the second half of last year, with the year-on-year decline gradually slowing down.
Smart Family deployment delivering prominent results, restoring the value of the broadband service. The Company captured upgrade demand for family informatisation in areas such as online education, remote office and video entertainment, among others. The Company further enhanced its household Gigabit access service by leveraging 5G + Fibre Broadband + WiFi6, expedited the penetration of Smart Family product and service portfolio and forged the overall competitiveness of its high-quality Gigabit access services coupled with Smart Family applications. This drove the integration and mutual promotion between the Company’s broadband service and Smart Family service.
In the first half of the year, the number of the Company’s broadband subscribers reached 154 million. Revenues for wireline broadband access amounted to RMB35.3 billion, representing an increase of 0.5% compared to the same period of last year and reversing the downward trend. The number of e-Surfing HD subscribers reached 114 million with revenue increasing by 16.9% over the same period of last year to RMB4.2 billion. Revenue for Smart Family applications and services5 reached RMB1.2 billion, representing an increase of 131% compared to the same period last year. Of which, the number of Whole-home WiFi subscribers reached 25 million with revenue amounting to approximately RMB800 million; and revenues from Family Cloud and e-Surfing Webcam increased by approximately 1.5 times and 6.5 times respectively, compared to the same period of last year. Our rapid expansion in the Smart Family market effectively facilitated the restoring of the value of our broadband service. In the first half of the year, our broadband access ARPU was RMB38.3, up by 4.6% from the second half of last year, with the year-on-year decline being significantly narrowed. The broadband blended ARPU6 reached RMB44.2, representing an increase of 8.1% compared to that of the second half of last year and rebounding to the same level as the same period of last year. The value contribution of Smart Family was significantly enhanced.
Accelerating integration and innovation of new technologies, expanding the new space provided by Industrial Digitalisation. The Company firmly grasped the trend of digital transformation of economy and society. Focusing on targeted markets such as digital government, smart cities, hygiene and healthcare and industrial Internet, the Company sped up the integration and innovation of new information technologies including 5G, cloud, Big Data, Internet of Things (IoT) and artificial intelligence (AI). Leveraging its unique strength in cloud-network integration, the Company constructed a digitalised platform and expanded ecological cooperation, in order to strengthen the development and operation of its cloud-network products and accelerate the matureness and launch of 5G industry applications in various fields. The Company also supported the building of digital government and the empowerment of smart cities, built a “1 + 2” digital platform for smart cities and conducted research and development (“R&D”) of “IoT- cloud integration” products. The Company created a standardised demonstration framework for smart park with digital twin, built benchmarking demonstrative digital projects such as smart communities, smart firefighting, smart construction sites and city pipeline networks. The Company also expanded the field of 5G + industrial Internet, amassing more than 300 use cases. On the basis of 5G “Super Uplink”7, edge cloud, IoT and AI technologies, the Company built a series of benchmarking industry applications for smart manufacturing, including the cloud platform for video inspection and control, unmanned cargo delivery, smart manufacturing workshops and informatised smart parks. In these ways, we significantly enhanced our capabilities to expand into the Industrial Digitalisation market.
In the first half of the year, revenue for the Company’s Industrial Digitalisation8 amounted to RMB42.9 billion, taking an industry leading position in terms of revenue size and representing an increase of 5.1% compared to the same period of last year. Of which, revenue for IDC amounted to RMB14.5 billion, representing an increase of 11.9% compared to the same period of last year. Revenue from Industry Cloud amounted to RMB4.7 billion, representing an increase of 30.4% compared to the same period of last year, and revenue for Network Dedicated Line reached RMB10.2 billion, representing an increase of 4.6% compared to the same period of last year. Revenue for IoT amounted to RMB1.3 billion, representing an increase of 15.5% compared to the same period of last year, while revenue for Internet Finance amounted to approximately RMB700 million, representing an increase of 7.5% compared to the same period of last year.
Continuing Cloudification reform, while deploying digital transformation to advance high- quality development
At present, cloud-network integration and new infrastructure have become the essential foundation for the accelerating development of the digital economy. In the first half of the year, the Company pushed forward the construction of new infrastructure based on cloud- network integration from a comprehensive perspective, deepened innovation of mechanism and system and proactively engaged in open cooperation. The Company promoted digital transformation and accelerated the establishment of new impetus to foster capabilities and accumulate momentum for high-quality development.
Building “new infrastructure” based on cloud- network integration to capture new opportunities emerging from the digital economy. The Company accelerated the advancement of its cloud-network integration strategy of “Cloud central, Network around, Network adaptive to cloud, Cloud and network as one”, and continued to establish the capabilities system in terms of resource, technology, ecology, application, security, and endowment for e-Surfing Cloud.
In the area of network infrastructure, the Company continued to conduct 5G network co-building and co- sharing with China United Network Communications Corporation Limited. In the first half of the year, the Company invested RMB20.2 billion to build and activate approximately 80,000 5G base stations. The total number of 5G base stations in use is close to 210,000, enabling a quick establishment of the network coverage capability while effectively reducing network construction and operating costs. The 200MHz bandwidth network achieved a peak downlink speed of 2.7Gbps, with leading user experience in terms of 5G speed. The Company adopted 5G standalone (SA) architecture as the best practice for cloud-network integration and continued to strengthen its technological innovation. After having launched the world’s first SA commercial network capability in 2019 in Shenzhen, the Company accelerated the construction of a nationwide SA network for commercial use. In addition, the Company also expedited the construction of high-quality optical transport networks (OTN) for government and enterprise customers, and superior CN2-DCI carrying networks, alongside e-Surfing Cloud intelligent network based on SD-WAN. The Company also completed the construction of a nationwide ROADM backbone network and achieved unified allocation of network resources, further strengthening its leading edges in networks.
In the area of cloud resources, the Company quickened its unified deployment of cloud and IDC based on “2+4+31+X” layout and forged differentiated competitive advantages. The Company built mega- scale IDC parks in Inner Mongolia and Guizhou to meet the needs from national sizeable customers. In the four most economically developed regions of China namely Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong- Hong Kong-Macau, and Sichuan-Chongqing-Shaanxi, the Company deployed IDC on a large-scale around core cities, covering the surrounding areas. Across the key cities of the 31 provinces nationwide, the Company consolidated provincial cloud resource pools to meet localised business needs. At the edge of the network, based on the resources of nearly 60,000 exchange buildings and integrated access offices, the Company built massive edge nodes, leveraging the technical feature of 5G MEC to meet the requirements for low latency at the millisecond-grade for use cases such as industrial Internet and autonomous driving. At present, the total number of the Company’s IDC sites exceeds 600, which is the largest in number and also most widely deployed in China. The number of cabinets is over 380,000, of which 80% are deployed in the four economically developed regions while 60% are concentrated in mega-scale and large-scale data centres9. With prominent data-orientated characteristic and significant edges of centralisation with efficiency, the national average cabinets utilisation rate is 70%, which is higher than the industry average with room for further expansion. In the future, the Company will continue to expedite the construction of large-scale data centres in the four regions of Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macau, and Sichuan-Chongqing-Shaanxi. The Company will continue to consolidate its leading competitive advantages in IDC leveraging the unique edges of operators, including Internet access capabilities, flourishing product portfolio, secure and reliable service assurance, and strong customer resources.
In the area of cloud applications, the Company accelerated the commercialisation of core technologies of e-Surfing Cloud, built digitalised platforms such as cloud desktop, big video, Big Data and AI, IT PaaS, and hybrid clouds. Focusing on the typical use cases of cloud migration for enterprises, the Company collaborated with leading domestic and foreign application partners to build the ecosystem for products and solutions, launching a series of cloud applications and services for different sectors such as government administration, healthcare, education, SMEs, finance, industrial enterprises, and smart cities. The Company also embarked on the construction of the new-generation cloud-network operating system and achieved self-selected bandwidth and fast service activation capabilities empowered by a “cloud-led network”. In July 2020, at the “Trusted Cloud Summit 2020”, the Company’s e-Surfing Cloud received three best practice awards in the areas of cloud management and cloud network, cloud infrastructure services, and industrial services and was accredited with the “Top 10 Best Cloud Migration” outstanding cases, including 5G intelligent management and maintenance system for roads and bridges; cloud platforms for video; cloud services for smart hospitals; dedicated cloud for financial security; and hybrid cloud for Hangzhou Steam Turbine. Our e-Surfing Cloud services have now covered individual, family, government and enterprise customers. In the first half of the year, revenue for Overall Cloud10 continued to increase rapidly to approximately RMB6.7 billion, with further elevation in size.
Deepening reform of mechanism and system, strengthening proprietary technological innovation and promoting ecological cooperation of industry chain. Driven by customer demand, the Company commenced the system reform in government and enterprise business field. For targeted markets such as hygiene and healthcare, digital government, smart cities, industrial Internet, finance, SMEs, IDC partnership with cloud service providers, education, transportation and logistics, the Company set up an information services business group for government and enterprise customers which vertically integrated companies at three levels, including headquarters, provincial and municipal levels. The Company broke through internal boundaries within its organisation, strengthened its cross-field capability coordination, enhanced R&D and innovation for cloud- based and platform-based solutions, and introduced a market-oriented assessment and incentive mechanism.
The Company invested more into R&D, pushed forward reform of flattening its R&D system and continued to make breakthroughs in key technologies in the area of new infrastructure. The Company led the development and release globally of “5G SA Implementation Guidelines”, supported the enriching and flourishing of the 5G SA ecological environment. Within the 3GPP R16 standards, the Company led the formulation of 10 technical standards and the completion of the 5G “Super Uplink” core standard, which was included as one of the key features for 5G R16 standards. The Company ranked first amongst global operators in terms of the number of 3GPP RAN projects initiated. The Company conducted proprietary R&D for lightweight UPF products with high- efficiency connection to the 5G core network, which enabled lightweight, low-cost and flexible deployment of 5G, propelling 5G endowment to vertical industries. The Company also increased its proprietary R&D capability of e-Surfing Cloud, mastered a series of core technologies in integrating infrastructure, platform, and “Cloud + AI/5G/ultra HD” and built out abundant digitalised platforms and products for e-Surfing Cloud.
The Company constructed digitalised platforms based on cloud-network unification which congregated capabilities in areas such as connectivity, cloud, security, payment, video, Big Data and AI, so as to empower the external ecosystem as well as its customers and partners and establish a digitalised ecosystem that connects industry value chains and integrates multi- industries. The Company expanded ecological cooperation and introduced external capital. Our Internet Finance company started the comprehensive strategic cooperation with UnionPay’s Cloud QuickPass, enabled the interconnection of QR code payments and co- sharing of users, channels and merchants resources. The second round of strategic investment introduction under mixed ownership reforms has also commenced. Focusing on key areas such as 5G content, cloud, Smart Family, security and vertical industries, the Company strengthened deployment of ecological cooperation with leading companies and explored the establishment of a market-orientated operating approach to fully motivate employees.
Deploying digital transformation to enhance corporate operating efficiency. The Company utilised the capability congregation effect of its digitalised platforms to provide endowment to the external, as well as internal management and operation at the same time. The Company expanded the application of Big Data and AI in areas such as sales and marketing, investment, operation and maintenance, and management and service, to drive smart operation and promote quality and efficiency enhancement.
The Company accelerated the transformation of its development mode, deepened value management, enhanced the capability of its full channel operation, and built up its customer-oriented, digitalised and integrated online and offline channel system. The Company carried out intelligent analysis of target users’ personalised needs to enhance the quality of products and services while promoting information applications. The Company continuously reduced channel costs and wireline terminal costs, effectively enhancing the effectiveness of its market expansion. The Company ranked first within the industry for satisfaction in terms of public users, handset Internet access and mobile voice, while also maintaining an industry-leading position in overall customer satisfaction.
The Company reinforced precision network investment and operation. Through the correlation analysis of massive data, the Company precisely planned the construction of 5G base stations, expanded its 4G base stations capacity dynamically and increased FTTH port utilisation rate. The Company leveraged AI technology to commence energy saving pilot trials for mobile base stations and IDC sites. The Company also continued to promote energy consumption sub-division and strived for government preferential policy for electricity charges. The Company pushed forward the construction of base stations on the same site, increased tower sharing ratio and promoted the decommissioning of obsolete equipment. These multiple initiatives were implanted to tighten cost control in areas such as electricity charges, tower rentals and repairs. The Company further refined value management, appropriately managed and controlled aging cycle of projects and their profitability, revitalised existing equity investments and increased return on equity, thereby comprehensively elevating the input and output efficiency of resources.
Corporate Governance and Social Responsibility
Award-winning and high level of governance. The Company strives to maintain a high level of corporate governance by adhering to excellent, prudent, and effective corporate governance principles. We continued to improve our corporate governance methods, standardise our operations, strengthen our internal control system and implement comprehensive measures in the areas of governance and disclosures, to ensure that our corporate operations align with the long-term interests of the Company and its shareholders. In the area of corporate governance, our consistent efforts and outstanding performance have been widely recognised and highly appreciated by the capital market. The Company was awarded “Most Honoured Company in Asia” by Institutional Investor for the tenth consecutive year and ranked second in its “Best Environmental, Social and Governance” and “Best Investor Relations Program” categories for Asian telecommunications industry. The Company was also named “No.1 Best Telecommunications Company in Asia” in the “Asia’s Best Managed Companies Poll 2020” organised by FinanceAsia and No.2 in its “Best Environmental Stewardship in China”, “Most Committed to Social Causes in China” and “Best Investor Relations in China” awards and No.3 for its “Best Corporate Governance in China” award. In addition, the Company was also awarded “The Best of Asia – Icon on Corporate Governance” for the thirteenth time by Corporate Governance Asia.
Fully implemented corporate social responsibility by supporting epidemic prevention and control and safeguarding economic and social development. With the outbreak of the COVID-19 epidemic at the beginning of this year, the Company was fully committed to the telecommunications and emergency assurance for epidemic prevention, and quickly activated 5G service for Huoshenshan and Leishenshan hospitals. The Company also provided 4K ultra HD live 5G cloud broadcast of the construction of the hospitals, with accumulated hits of its “cloud supervision” live broadcast exceeding over 300 million and the concurrent live viewer number peaked beyond 20 million. The Company successfully completed the important assurance tasks such as video connection and remote diagnostics and consultation between hospitals in Wuhan and other provinces and municipalities. The Company launched “Operation Warm Spring”, leveraging on its edges stemming from cloud- network integration to promote a number of integrated information services such as SMEs cloud migration, e-Surfing Cloud conferencing, education cloud migration and hospital cloud migration, among others. The Company also initiated informatisation services support specifically for SME customers, while helping small, medium and micro enterprises, as well as self-employed merchants to reduce their operational burdens. The Company provided rent reductions and exemptions, as well as other forms of business support for its channel agents and other partners in order to support epidemic prevention and control, as well as the resumption of business and production. The Company also promptly launched more than 20 service measures such as public welfare SMS, incoming call business card and quick activation of services. During the period of epidemic prevention and control, the Company provided various integrated information services to healthcare personnel for free, while also strengthening its care for employees and to safeguard their safety and well-being.
As present, the digital transformation of national economy and society is accelerating, while the economic structure continuing to optimise and the shift of development impetus being expedited. The communications industry is now at a new historical starting point. The new round of technological and industrial revolution, combined with the integration and innovation of the new generation of information and communications technologies, has generated new business formats. New infrastructure, represented by 5G and data centres, are the cornerstones of the fourth industrial revolution, which will create massive and in- depth development opportunities for the Company.
The Company will adhere to the new development principles, promote epidemic prevention and control as well as operation and development in a coordinated approach, grasp new trends of digital transformation of economy and society, intelligent upgrades and integration and innovation, to proactively push forward new infrastructure construction to support Cyberpower, while safeguarding network and information security. The Company will accelerate its Cloudification reform as well as digital transformation, strengthen its edges in cloud-network integration and build up digitalised platform capability. The Company will strengthen its efforts in technological innovation, cultivate ecological cooperation, continuously enhancing its development momentum and vitality to achieve corporate sustainable and healthy development with higher quality and higher efficiency. The Company will accelerate the advancement towards becoming an integrated intelligent information service provider, while striving to create new value for shareholders.
Finally, on behalf of the Board of Directors, I would like to take this opportunity to express our sincere appreciation to all our shareholders and customers for their support. I would also like to express our sincere thanks to all our employees for their hard work and contributions. At the same time, I would like to welcome Mr. Li Zhengmao and Mr. Shao Guanglu to join our Board of Directors.
Chairman and Chief Executive Officer
18 August 2020
- Service revenues are calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and other non-service revenues.
- EBITDA is calculated based on operating revenues minus operating expenses plus depreciation and amortisation.
- Net profit represents profit attributable to equity holders of the Company.
- Free cash flow is calculated based on EBITDA minus capital expenditure, income tax and depreciation charge for right-of-use assets other than land-use-rights.
- Smart Family applications and services include services such as Whole-home WiFi and Family Cloud, among others.
- Broadband blended ARPU is calculated based on the sum of monthly average revenues from broadband access, e-Surfing HD and Smart Family applications and services divided by the average number of broadband subscribers.
- The development of the 5G “Super Uplink” (UL Tx switching) was led by China Telecom. It was incorporated into the 5G R16 global unified specification by 3GPP on 3 July 2020.
- Industrial Digitalisation includes IDC, Industry Cloud, Network Dedicated Line, Internet of Things (IoT), Internet Finance, system integration services and other informatisation services.
- According to the scale classification on data centre from MIIT, a mega-scale data centre refers to a data centre with a scale greater than or equal to 10,000 standard cabinets; and a large-scale data centre refers to a data centre with a scale greater than or equal to 3,000 standard cabinets and less than 10,000 standard cabinets.
- Overall Cloud includes Industry Cloud, Family Cloud and access service directly related to cloud, etc.