Recently, China Unicom launched an NB-IoT module bidding project, with an expected procurement scale of 3 million units, a price cap of 35 yuan per unit, and a minimum of four winning bidders. These figures caught my attention. In contrast, C114's exclusive report last year on China Telecom's "world's largest" NB-IoT tender was "only" 500,000 units, with only one supplier, ZTE IoT (now renamed Gosuncn IoT), and China Telecom providing a generous subsidy of 30 yuan per unit. China Unicom's current tender is larger in scale, has more suppliers, lower prices, and shows a significant difference.
So, is this a normal evolution of the NB-IoT industry chain, from its inception in 2017 to its large-scale commercialization in 2018? Looking at this year, NB-IoT applications haven't seen a breakthrough; despite increasing demand, there's a lack of significant growth. C114 conducted an in-depth investigation into these differences, attempting to clarify the industry logic behind China Unicom's recent NB-IoT module tender.
Price Analysis
To understand the logic behind China Unicom's NB-IoT module bidding, we must first look at China Telecom's "world's largest bidding process" last year. China Telecom was the first to complete the upgrade and deployment of 300,000 NB-IoT base stations last year, and piloted its application. This 500,000-unit scale represented the largest market segment last year, attracting 12 module manufacturers to participate in the bidding.
China Telecom chose to monopolize the orders with only one supplier. The logic behind this was that if the market share were distributed among different manufacturers, none of them would receive enough orders to achieve economies of scale, which are crucial for reducing product development costs. Simultaneously, China Telecom provided substantial subsidies, equivalent to half the module price, to incentivize the industry chain to rapidly reduce costs.
It's important to understand that NB-IoT is currently mainly replacing GSM applications. After many years of continuous maturation and price reductions, the cost of GSM modules has dropped to below 20 yuan per unit. Although NB-IoT has many advantages over GSM, such as low power consumption, wide coverage, and large capacity, its high price of about 60 yuan per unit last year was the biggest obstacle to its large-scale promotion and application.
China Unicom's price cap of 35 yuan per module must have been the result of extensive industry research, ensuring that manufacturers could afford to bid at a price no higher than 35 yuan. From this perspective, China Telecom's strategy has been successful, driving the industry chain to reduce NB-IoT module prices by 40% in less than a year. Both module manufacturers and chip manufacturers have made significant contributions.
Zhao Xiaofei, a well-known figure in the IoT industry, told C114 that the price cap of 35 yuan per unit is achievable for manufacturers if the volume is large enough, preventing them from losing money while gaining market share; of course, they won't make much profit. According to China Unicom's bidding rules, winning bidders are expected to order hundreds of thousands to millions of units, enough to generate economies of scale and reduce costs. "Under intense competition, prices may even drop further."
Zhao Xiaofei stated that the decrease in NB-IoT module costs is due to two main factors: firstly, chip costs, such as MediaTek and RDA chips which focus on cost-effectiveness, and their entry into the market will inevitably drive down the overall price; secondly, the progress made by module manufacturers in building their own production lines, in terms of materials and manufacturing processes, can also help reduce costs.
"With a price cap of 35 yuan, module manufacturers can make money, but the key lies in whether they can secure a large supply of low-priced chips." Another anonymous industry insider pointed out to C114 that there are not many chip manufacturers that can meet the needs of operators, and HiSilicon may be the biggest beneficiary of this tender.
Scale Analysis
To some extent, NB-IoT was "forced" to mature by China's telecommunications industry. The NB-IoT standard was frozen in June 2016, taking less than eight months from project initiation to protocol finalization, making it one of the fastest-established 3GPP standards in history. The Ministry of Industry and Information Technology (MIIT) issued the "Notice on Comprehensively Promoting the Construction and Development of Mobile Internet of Things (NB-IoT)," requiring the number of NB-IoT base stations to reach 400,000 by the end of 2017 and 1.5 million by 2020.
The three major telecom operators have responded positively. Following China Telecom and China Mobile's large-scale deployment, China Unicom also completed the construction of 300,000 NB-IoT base stations this year, placing it on a level playing field without falling behind. With base stations and networks in place, applications can be developed. The question remains: how well will the industry accept NB-IoT? And how will China Unicom absorb its current tender of 3 million base stations?
The aforementioned anonymous source believes that, based on the application progress in 2018, 3 million is definitely a huge number. "Each company's demand should be in the millions, but the total is estimated to be around 6 million. A large gas company may need 10,000 terminals, so for 3 million, they would need to find dozens of such customers. At present, full implementation is difficult. More likely, it will be a framework agreement for separate contracts, to show the industry their stance."
Zhao Xiaofei also believes that industries such as smoke detectors and fire protection may have a large demand for NB-IoT terminals, while industries such as water and gas have a longer terminal replacement life cycle. Even if they like NB-IoT, it is impossible to completely replace it quickly. This will take a process.
An executive from a module manufacturer told C114 that the 500,000 orders signed by China Telecom last year were only fully fulfilled this year, taking more than half a year. During this process, manufacturers gained more insights into the cost-effectiveness of their products and how operators can promote industry applications. Therefore, the release schedule of China Unicom's order shouldn't be a major concern; what matters is securing as many orders as possible and "securing a foothold" in the market early.
Industry Chain Analysis
Securing large orders, maintaining substantial inventory to cope with unpredictable schedules, and simultaneously controlling costs pose significant challenges to the operational capabilities of module manufacturers. Many interviewees agree that the NB-IoT module market will likely see a "winner-takes-all" scenario, with smaller manufacturers generally adopting a more conservative approach and finding it difficult to bear the risks of large upfront expenditures.
According to C114, most mainstream module manufacturers in China currently face low gross profit margins and significant cost pressures. However, listed companies such as Gosuncn and Sunsea AIoT aggressively entered this field last year, rapidly scaling up through acquisitions and leveraging their strong financial resources to mitigate risks. These two companies are expected to be strong contenders in China Unicom's upcoming tender.
Despite skepticism about large-scale adoption this year, all interviewees told C114 that they are optimistic about the future of NB-IoT. Furthermore, from a cost perspective, NB-IoT still has room for further price reductions. Zhao Xiaofei believes that GSM modules, after ten years, have seen cost reductions driven by economies of scale. For example, the demand for satellite TV reached hundreds of millions in a short period, rapidly reducing costs from a relatively high price to below 20 yuan, thus achieving high cost-effectiveness. Theoretically, it is feasible for NB-IoT modules to reach the price of GSM modules.
The current scale of NB-IoT applications, having already absorbed the benefits of cost reductions due to mature chip and manufacturing processes, is insufficient to support further large-scale price cuts. Therefore, large-scale application and cost reduction are mutually reinforcing. China Unicom's recent tender is undoubtedly a major boon to the NB-IoT industry chain; however, manufacturers need to be wary of the risks associated with low profit margins while securing these substantial orders.
China Unicom's large-scale tender also reveals another implicit message: China Mobile and China Telecom will also have significant demand. China Mobile is expected to add 120 million IoT connections in 2018, while China Telecom and China Unicom will each add 60 million, with NB-IoT playing a crucial role. Leveraging this scale will be essential for NB-IoT module manufacturers to achieve substantial growth in the coming years.
