Business Review

2016 was a robust year marked by accelerated strategic transformation for the Group. With ardent dedication, the Group continued to promote entrepreneurship and innovative development amid a complicated competitive environment, making most earnest endeavours to bolster its core competences and innovative calibre. Coupled with its redoubled efforts to further the integrated development of the "four growth engines", the Group managed to maintain relatively rapid and sound growth momentum and achieve encouraging overall results.

Key Operating Data
2015 2016 Change %
Mobile Business  
Customer Base (million) 826.24 848.90 2.7
Of Which: 4G Customer Base (million) 312.28 535.04 71.3
Net Additional Customers (million) 19.61 22.66 15.6
Of Which: Net Additional 4G Customers (million) 222.22 222.75 0.2
Average Minutes of Usage per User per Month (MOU)
430 408 -5.2
Average Handset Data Traffic per User per Month (DOU)
339 697 105.7
Average Handset Data Traffic per 4G User per Month (DOU)
748 1,027 37.4
Average Revenue per User per Month (ARPU)
56.3 57.5 2.2
Wireline Broadband Business  
Customer Base (million) 55.03 77.62 41.1
Net Additional Customers (million) - 22.59 -
Average Revenue per User per Month (ARPU)
31.9 32.1 0.5
Average Revenue per User per Month (ARPU)
(Including Home Digital Services) (RMB/user/month)
31.9 33.8 5.8
Internet of Things ("IoT") Business  
Connections (million) 65 103 57.0
Operating Performance

The Group ended 2016 with continuing market leadership. The total number of mobile customers reached 849 million, with a net addition of 22.66 million in 2016. Mobile ARPU reached RMB57.5, representing an increase of 2.2% from the previous year. The Group demonstrated comprehensive leadership in the 4G market, with its 4G customer base recording a net addition of 223 million from 2015 to reach 535 million. Riding on the burgeoning growth of data traffic business, wireless data traffic became the largest contributor to the Group's telecommunications services revenue with its 46.2% contribution. In 2016, the Group has initiated the cancellation of domestic long distance and roaming tariffs in its efforts to mitigate the associated risks and this measure, together with the substitution by Internet business, has cast a pall over the Group's voice and SMS/MMS businesses characterised by declining revenues from these lines. The Group's wireline broadband business achieved significant progress with its customer base leaping to 77.62 million as at the end of 2016 and wireline broadband ARPU (including home digital services) growing by 5.8% from the previous year. The IoT business also witnessed notable growth with the number of connections exceeding 100 million.

Actuating The Four Growth Engines

Over the past year, the Group has accelerated business transformation and striven to explore room for future development, with a shifted focus from the traditional operating model to the integrated development of the "four growth engines".

The Mobile Market

The Group is well aware that maintaining a leading position in the mobile business is vital to its success as a whole. To firmly and timely grasp the divergent growth opportunities arising from the current market, the Group has devoted great efforts to ramp up its 4G business, leading to a continuing enhancement to network quality and an expansion of customer base. Harnessing these positive results, the Group has comprehensively established its 4G competitive edges.

The Group added 0.4 million 4G base stations in 2016, bringing the total number to 1.51 million. As an operator boasting the world's largest 4G network, the Group provides coverage for a population of over 1.3 billion. Meanwhile, the average download speed on urban roads has improved to 40Mbps, resulting in enhanced customer experience.

Thanks to the Group's considerable efforts to promote the migration of 2G/3G customers to the 4G network, the 4G penetration rate of its mobile customers has reached 63% and its market share for net additional 4G customers has exceeded 64% as at the end of 2016, enabling it to be the largest operator in the world in terms of 4G customer base. The rapid development of the 4G business also led to a marked uplift in the Group's overall customer value, with 4G customer DOU maintaining its upward trajectory to reach an annual average of 1,027MB, which was 7.5 times as high as 2G/3G customer DOU. These results have together provided a strong testament to the value of the Group's 4G network.

In addition to network upgrade, the Group also proactively developed signature 4G products. The Group has built the world's largest VoLTE (Voice over LTE) network, providing high quality VoLTE for commercial use in 313 cities and progressively enabling implicit, automatic connection within the entire network. To tally with this development, the Group took measures to bolster the growth of the terminal industry which drives the development of VoLTE. As at the end of 2016, there were a total of 1,090 4G terminal models in stock, of which 927 models supported VoLTE. The Group has proactively rolled out a number of measures to continuously expand its data traffic operations in response to the "speed upgrade and tariff reduction" regulatory initiative. Reaping the benefits of the buoyant growth of 4G, the Group offered a rich range of data products and launched a series of actions to enhance data value. The Group's efforts bore fruit and its data traffic business scaled new heights. Handset data traffic increased by 127.7%, with DOU recording a 105.7% increase year-on-year to reach 697MB. Revenue from the wireless data traffic business has surpassed that of the traditional business to become the largest source of revenue of the Group.

Building on its exceptional strategic visioning competence, the Group has made a tactical move by taking the initiative to cancel domestic long distance and roaming tariffs in 2016. By completely ceasing the sales of non-flat rate packages, the Group managed to migrate customers to flat rate packages in a balanced and orderly manner, leading to mitigation of operating risks. In 2016, the number of flat rate packages took up 63.6% of the total.

The Household Market

The Group's overarching strategy for its wireline broadband business is to expedite a boost to business quality and market competitiveness by consistently adopting a high-end marketing approach which aims at delivering products and services with enhanced network speed and quality and targeting at specific customer groups. The total number of wireline broadband customers grew to exceed 77.62 million in 2016, of which, net additional customers amounted to 22.59 million and accounted for over 63% of the total net additions in the market. Buoyed by the Group's focused efforts to promote mid to high-bandwidth products, the proportion of customers subscribing to products with bandwidth of 20Mbps or above has reached 76.9%. An emphasis has been placed on raising returns on investment, and APRU has risen to RMB32.1. In the meantime, the Group has devised plans to proactively tap into the household market and endeavored to establish its presence in homes with an expanding range of home broadband products. It has recorded an encouraging result for its home digital product "Mobaihe", a set-top box that provides high-definition video-on-demand service, with the number of customers surpassing 22.80 million. The wireline broadband ARPU that included home digital services reached RMB33.8.

The Corporate Customer Market

The Group is devoted to enlarging its market share in the corporate customer market, forging ahead with keen determination to upsize its revenue market share and to refine its product portfolio, at the same time continuously strengthening its initiatives to promote business expansion in this sector. The Group continued to expend efforts to structure its service offerings for six key industry sectors including public administration, finance, transportation, education, healthcare and energy, placing a special focus on providing information solutions to major sectors. Buoyed by these initiatives, revenues from the Group's data dedicated line services and IDC (Internet Data Centres) recorded respective increases of 32.1% and 76.3% from the previous year, and the Group basically achieved its target to obtain one-third revenue market share in the corporate telecommunications and informatisation service market.

The Emerging Business

As a consistent effort to optimise customer experience, the Group has expedited the launch of competitive digital service products, proactively conceived and developed new ideas for applications and content businesses, and continuously performed industry benchmarking. Spurred by these initiatives, the Group managed to obtain various achievements in 2016, among which, the "One Hundred Schools Project" under the NFC (Near-field communication) business was successfully concluded, and "and-Wallet", the Group's mobile payment service, recorded a total annual transaction amount of more than RMB1 trillion. The Group has also established the world's largest dedicated core network for IoT with more than 100 million connections as at the end of 2016. At the same time, the Group launched the market-leading OneNET platform, an open IoT platform aiming to nurture and accelerate the growth of the overall IoT industry ecology. The OneNET platform currently connects more than 7 million devices, serving around 30,000 developers and more than 3,000 companies.

Upgrading Core Competences with Vigour

In 2016, the Group continued to strengthen its core competences and operational management by promoting best practices and taking a number of measures with a special focus on spreading the tenets of "centralised management, operational specialisation, market-oriented mechanism, lean organisation structure and process standardisation".

Network Capability Scaling New Heights

"Network quality is the lifeline for any telecommunications company". With a clear determination, the Group sets its sights on crafting a premium network and continuously taking initiatives in its quest to reinforce its network infrastructure. In respect of the wireless network, the Group has placed a special focus on enhancing network blind spots and business hotspots. Together with the 58% increase in indoor coverage area, the Group managed to realize full 4G coverage of major areas including high speed railways, subways and scenic spots, resulting in a further increase in the 4G retain ability rate. In respect of the wireline network, the Group has constructed an efficient and precise network with a FTTH (Fibre-to-the-home) coverage ratio of over 80%. Concurrently, the Group has taken prompt actions to upgrade its service support for the household market, leading to a drastic reduction in the processing time for device installation and complaint handling. In respect of transmission, the Group has directed efforts to establish high speed, high efficiency and intelligent backbone transmission networks, quickly establishing its leading position in the industry. The Group saw relatively visible improvements in its international internet bandwidth and international transmission capabilities. Backbone network capability was also enhanced with interprovincial transmission network bandwidth increasing by 204T to reach 285.7T. In respect of contents, the Group has endeavoured to promote distributed caching technology with efforts also devoted to accelerating the construction of a cache-enabled CDN (content delivery network) that resulted in a significant reduction in front-page loading latency and video jam frequency. In respect of maintenance, the Group saw a significant advancement of centralised network failure management, and by possessing fundamental abilities in managing big data's network quality, the Group managed to bring its maintenance efficiency initiatives into full play.

An Unflagging Pursuit of Customer Service Excellence

At the heart of its operations is the Group's unflagging pursuit of customer service excellence: its unwavering devotion to providing exceptional customer services and a relentless focus on its valued customers. Honoring this commitment, the Group strives to continuously upgrade its service quality management and create a transparent and secure communication platform. The Group has started the full centralization of its 10086 customer service hotline operation in 2016, pooling resources effectively that resulted in increased service efficiency and a further improvement in the overall hotline connection rate. Furthermore, the Group continuously upgraded its service capacity in electronic channels, with the number of customers visiting its virtual outlets approaching 200 million. Regarding communication security, the Group has taken steps to further enhance its performance in terms of safeguarding communication networks and upholding information security. The Group suspended and blacklisted over 1.96 million nuisance call numbers and intercepted more than 100 million fraudulent calls from overseas, successfully curbing new types of unlawful behaviours and crimes taken place in the telecommunications networks. As a result of the further refinement of its close-loop management mechanism of service quality, the Group achieved a market-leading customer satisfaction rate and a Net Promoter Score according to independent survey results.

An Immense Boost to IT Support Capability

Buoyed by its promotion efforts, the Group recorded a rising proportion of the Third-generation Business Operating Support System that transformed to the "All Cloud" network. The Group has also forged ahead with plans to expand its big data capacity, and following the completion of phase one of the centralised big data platform, the number of invocation services provided by the Group has exceeded 10 billion times. Meanwhile, every effort has been stepped up to reinforce business support and unlock synergy across operations, and the Group was empowered with "single-source billing" ability as a result of the completion of the centralised billing system for international roaming.

An Accelerating Uplift in Professional Operational Competences

The Group's professional companies including the International Company, China Mobile Device and the Research Institute continued to witness prosperous growth. By taking measures such as continuously optimising the international roaming tariff model and rolling out the "Hand-in-Hand Program" in harness with international counterparts, the Group managed to propel a 229% increase in international data roaming business. Total sales volumes of the Group's self-branded handsets and set-top box "Mobaihe" terminals reached 3.62 million and 2.25 million respectively in 2016. In pursuit of its 5G aspirations, the Group has made active participation in relevant research and development activities, including overseeing 5G overall frameworks in 3GPP (the third Generation Partnership Project) and establishing the 5G Joint Innovation Centre.

Capital Expenditure

Taking a critical step on the road to transformation, the Group has evolved a two-pronged strategy to address the rising demands for high data traffic and high bandwidth buoyed by the implementation of the "four growth engines" initiative. While the Group will place an emphasis on establishing premium networks to upscale its core business and lay a solid foundation for upcoming market competition, it will, at the same time, strive to lower construction costs and raise capital expenditure efficiency through sophisticated planning and sensible deployment of resources.

Capital expenditure amounted to RMB187.3 billion in 2016, slightly higher than the RMB186.2 billion budgeted at the beginning of the year. The variance was mainly attributable to respective investments of RMB83.0 billion and RMB25.5 billion in the 4G and wireline broadband networks, as the Group stepped up efforts to strengthen these capacities particularly in response to the rapid growth of data traffic business in certain hotspot areas.

The Group will, at a reasonable pace, continue to prioritize investment choices with a refined direction to ensure investment efficiency in 2017. Capital expenditure is expected to record a reduction of RMB11.3 billion from the previous year to RMB176.0 billion in 2017, with resources mainly invested in areas that, amongst others, align with the Group's endeavours to strengthen its competitive edge in the 4G network, establish a high-quality full-fibre broadband network, construct network infrastructure for the advance planning of future development and enhance IT integration capabilities, which are all central to the Group's plan to underpin its market leading position in network capabilities and customer perception.

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