4G Drives Chinese Telecom User Base

Zacks Equity Research
May 22, 2014

The Chinese telecom market is witnessing two contrasting scenarios as China Mobile Limited (CHL) continues to leverage from its 4G investments, while rival China Telecom Corporation Limited (CHA) goes on experiencing subscriber decline.

China Mobile serves 62.4% while China Unicom Hong Kong Limited (CHU) caters to 23.1% of the Chinese market. The remaining 14.5% is addressed by China Telecom. Recent statistics of these three carriers show that the world’s most populated country had 1.26 billion wireless customers at the end of April 2014, with 4G gaining the maximum attention.

China Mobile, the world’s largest mobile operator in terms of subscriber base, had 4.8 million 4G customers at the end of April, having roped in 2 million alone in the same month. Although the carrier had 784.6 million customers at the end of April, 4G constitutes mere 0.6% of its total base. Notably, China Mobile received the TD-LTE (Time Division Long Term Evolution) license in Dec 2013 and since then has commercialized TD-LTE in different cities of China.

In mid-March, China Unicom launched its 4G service (TD-LTE) in 25 cities including the likes of Beijing, Shanghai and Guangzhou. At the end of April, the carrier had 290.6 million subscribers, adding close to 1 million customers.

China Mobile’s plans to spend approximately $6.9 billion (RMB 41 billion) for launching 4G services in 2014 while China Unicom’s expected investment stands far less at $1.65 billion (RMB 10 billion).

However, the picture is not as rosy for China Telecom. This smallest of the Chinese operators’ market share continues to dip as the company had a subscriber base of 182 million, with a loss of 1 million net customers at the end of April. According to the company, the launch of the LTE service and increased marketing efforts of peers have resulted in its poor performance. Both China Unicom and China Telecom are now eager to concentrate on the globally accepted FDD (Frequency Division Duplex) technology as its main 4G network.

Though initially expensive, we believe 4G will provide a significant opportunity for telecom carriers of China as this sector is still under-penetrated in the nation. With World Bank predicting a 7.6% economic expansion for China in 2014, the country provides substantial growth opportunity within the telecom space, particularly 4G. However, with China Mobile’s strong presence in the 4G market, in our view, both China Unicom and China Telecom need to ramp up their respective infrastructural investments to gain a meaningful market share.

China Mobile currently carries a Zacks Rank #3 (Hold), while China Unicom and China Telecom carry a Zacks Rank #4 (Sell). Better-ranked telecom stock KT Corp. (KT) with a Zacks Rank #2 (Buy) is worth considering.

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