Business Review

The Group continued to demonstrate favorable growth momentum and concluded 2017 with outstanding performance. During the year, the Group expedited implementation of the "Big Connectivity" strategy and continued to drive ahead with the integrated development of the "four growth engines", alongside its initiatives to foster reforms and innovation and establish synergy across operations. The Group has placed a steadfast focus on enhancing its ability to achieve transformational development and sustainable growth, with meticulous preparation having gone into supporting its strategic plans.

Key Operating Data
2016 2017 Change %
Mobile Business  
Customer Base (million) 849 887 4.5
Of Which: 4G Customer Base (million) 535 650 21.4
Net Additional Customers (million) 23 38 69.1
Of Which: Net Additional 4G Customers (million) 223 114 -48.6
Average Minutes of Usage per User per Month (MOU)
408 366 -10.2
Average Handset Data Traffic per User per Month (DOU)
697 1,399 100.9
Average Handset Data Traffic per 4G User per Month (DOU)
1,027 1,756 71.0
Average Revenue per User per Month (ARPU)
57.5 57.7 0.3
Broadband Business  
Wireline Broadband Customer Base (million) 78 113 45.2
Of Which: Household Broadband Customer Base (million) 74 109 46.9
Wireline Broadband ARPU
32.1 35.1 9.3
Household Broadband Blended ARPU
28.3 33.3 17.5
Internet of Things ("IoT") Business  
IoT Smart Connections (million) 103 229 122.0
Operating Performance

The Group enjoyed ongoing market leadership in 2017. It continued to stay in a leading position in the 4G market, with the corresponding customer base recording a net addition of 114 million and approaching 650 million. Riding on the 121.3% increase in handset data traffic, revenue from wireless data traffic has, on a full-year basis, surpassed half of the Group's total telecommunications services revenue for the first time. The Group's broadband business achieved burgeoning development, with the household broadband customer base exceeding 109 million. The IoT business also witnessed notable growth with the number of IoT smart connections registering a net addition of 126 million to reach 229 million.

The "Four Growth Engines" Delivering Favorable Momentum
Personal Mobile Market

Lying at the centre of market competition, 4G constitutes a core component of the Group's "four growth engines". The Group has striven to expand 4G business volume and scale, and at the same time reinforced business engagements with existing customers. Following these initiatives, the Group managed to maintain its leading position in the 4G market, coupled with an increase in development efficiency as reflected by the 73% 4G penetration rate of its mobile customers. The Group has also thoroughly cultivated customer value with measures to promote rapid growth of data traffic, and as a result, 4G handset customer DOU has reached 1.76GB. In addition, the Group has refined its terminal sales model, with more than 100 million 4G+ terminals being sold within its own sales network. At the same time, the Group has enhanced high definition VoLTE (Voice over LTE) services that enable implicit and automatic connection, and obtained a rapidly-expanding VoLTE customer base of 200 million.

Household Market

As an important area of growth amongst the "four growth engines", the Group's household market has been on a fast track of development. 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 Group achieved a dual-increase in scale and value in this business line. With a net additional customers of more than 34.95 million, the Group managed to further narrow its gap between the market leader. The proportion of customers subscribing to products with bandwidth of 50Mbps or above has reached 68%. Meanwhile, the Group has also expedited the development of platform services and applications business, amongst which, the number of "Mobaihe" (a set-top box that provides high-definition video-on-demand service) customers has surpassed 57.25 million. Household broadband blended ARPU increased to RMB33.3, representing a year-on-year increase of 17.5%.

Corporate Market

Corporate telecommunications and informatization services continued to be a "blue ocean" sector demonstrating enormous growth potential. The Group has forged ahead with plans to enhance competitiveness in the corporate market and placed a special focus on developing key business areas. Revenues of the Group's dedicated line services and IDC have increased by 30.8% and 85.9% respectively. The Group has also scaled up efforts to develop key vertical markets, providing enhanced industry informatization solutions to various business sectors including industry, agriculture, education, public administration, finance, transportation and healthcare. In an effort to further tap into the SME (Small and Medium Enterprise) market, the Group has also launched the "Double Speed" promotion campaign and "Broadband for Small- and Micro-enterprises" promotion products. In 2017, our revenue from corporate telecommunications and informatization services exceeded 36% of the total market.

Emerging Business

The emerging business is considered an important realm amongst the "four growth engines" as the Group ushers itself into the future. As the Group further refined its professional and strategic planning, it has redoubled its efforts to strengthen product development. The Group has experienced an ongoing expansion of digital business, and products such as MIGU, IoT and Internet continued to demonstrate growing competitiveness. At the same time, the Group has also scaled up efforts to promote the well-developed product lines. Revenues from "and-Video" and "and-Reading" increased by 67.2% and 10.3% respectively, and "and-Wallet" recorded a total annual transaction amount of more than RMB2.1 trillion. Spurred by the Group's initiatives to accelerate the development of IoT business, the number of IoT smart connections registered a net addition of 126 million to reach 229 million. The Group has also expedited the use of industry applications, in which 9 of them have recorded respective annual revenues of more than RMB100 million, in particular, the annual revenue of "and-Education" has exceeded RMB4.0 billion.

Continuously Upgrading Quality and Service

"Quality is the lifeline for any telecommunications company". 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. The Group continued to honor this commitment in 2017 and strove to establish itself as a telecommunications operator with long-lasting prestige and reputation.

The Group has enhanced end-to-end customer perception and managed to maintain an industry-leading satisfaction rate on network quality amongst 4G customers. Data on-net hit rate has increased while video jam frequency has reduced by 66%. The Group has also strengthened the capacity of its contents network by implementing unified scheduling and pooling of contents within the entire network, increasing average download speed post contents distribution by 2.7 times. By implementing measures to protect customer information security and privacy, the Group has taken part to curb new types of unlawful behaviours and crimes taken place in the telecommunications networks, thus creating a healthy and safe telecommunications environment for customers.

The Group has no reservation about assuring quality and customer interests, and consistently seeks ways to raise the standard of customer services. With refined product offerings, the proportion of customers subscribing to flat-rate packages has increased by 20.2 percentage points. To satisfy customer demands, the Group has launched day passes and various content-type large data products (i.e.: the "As I Wish" product series). As service transformation deepened, traditional services have become more intelligent and Internet-based, nearly 60% of the Group's key businesses were handled by its electronic channels.

Drumming Up Support for Business Transformation

Proactively and comprehensively, the Group took into account the development needs of the "four growth engines" and strengthened its core competences by taking a number of initiatives with a special focus on spreading the tenets of "centralised management, operational specialisation, market-oriented mechanism, lean organisation structure and process standardisation".

Network capability has scaled new heights. Boasting a total of 1.87 million 4G base stations, the Group set its sights on further enhancing its network coverage. The Group endeavoured to construct a quality full-fibre network, with the proportion of customers with fibre access exceeding 98%. While NB-IoT (Narrowband Internet of Things) has been launched in 346 cities allowing end-to-end scale commercial use, CDN (Content Delivery Network) has covered 340 cities in China. Meanwhile, the Group has constructed an addition of 73 POPs overseas, with international transmission bandwidth reached 23T.

The Group persistently bolstered its own core capabilities. With a product checklist, the Group has launched 43 products, all of which have showcased its core capabilities and were grouped under 4 major categories. It has also built a centralised big data platform, which has been utilized internally to establish big data application models and externally to promote products and services relating to network-wide tourism and finance. Additionally, the Group is at the forefront of 5G standard formulation and has become one of the companies taking charge of the most number of 5G projects in ITU and 3GPP, driving ahead with the international standard for 5G architecture.

The Group continuously fostered open co-operation. It worked closely and proactively with a number of external partners and, together, managed to create new products, services and capabilities. By grasping various cooperation opportunities with industry chain players, the Group has nurtured new competitive edges. The "1-3-9 Cooperative Initiatives" was launched during the year, aiming at promoting industry co-operation and sharing of expertise. In addition, the Group has expediated measures that promote public sharing of its more maturely developed service capabilities, in particular, the telecommunications capacity open platform has served more than 130,000 companies, and the centralised certification platform has, on average, processed 500 million accreditations daily.

Enhancing Capital Expenditure Efficiency

Taking a critical step on the road to transformation, the Group has evolved a two-pronged strategy to address the demands for high data traffic and high bandwidth brought about by the implementation of the "four growth engines". While the Group will focus on laying a solid foundation for the scale development of its core business and upcoming market competition, it will, at the same time, strive to raise capital expenditure efficiency through sophisticated planning and sensible deployment of resources.

Actual capital expenditure amounted to RMB177.5 billion in 2017, which was spent on areas including 4G, transmission, broadband access, NB-IoT and IT support in order to back the development of the "four growth engines" and continuously strengthen network development capabilities. Capital expenditure to telecommunications services revenue ratio has fallen by 3.4 percentage points from 2016, representing an enhancement to capital expenditure efficiency.

At a reasonable pace, the Group will continue to prioritize investment choices with a refined direction in 2018, making ongoing enhancement to investment efficiency.

Resources will be 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. For 2018, capital expenditure is planned to be RMB166.1 billion, representing a decrease of 6.4% from 2017. Capital expenditure to telecommunications services revenue ratio is expected to further go down.

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