China Telecom Turns Up Volume in 3G Drive 中国电信计划一鼓作气 3G市场欲再下一城

By newsdoug on March 13, 2012

An increasingly confident China Telecom (HKEx: 728; NYSE: CHA), armed with a newly signed deal to sell Apple’s (Nasdaq: AAPL) wildly popular iPhones in China, is making some bold predictions about its growth this year, setting the stage for what could easily shape up as a bloody war for 3G subscribers. Chinese media are quoting an executive at the smallest of the nation’s 3 mobile carriers saying the company’s 3G subscriber base could surpass that of its older 2G base by the end of this year. (Chinese article) To me that goal sounds reasonable, admirable and something China Telecom should be aiming for — until I took a look at the numbers. According to its latest data for January, the company had just over 130 million total subscribers, with about 40 million of those using 3G and the remaining 90 million on its older 2G service. So if the 2G number were to remain completely unchanged for the rest of the year, China Telecom would have to add a hefty 50 million 3G subscribers this year to meet the executive’s forecast — a 35 percent increase to its current user base. That growth rate is actually roughly comparable to what China Telecom posted last year, when it began its aggressive campaign to add 3G users. But in terms of actual user numbers, the potential addition of 50 million or more this year would mark a sharp increase from the roughly 36 million subscribers China Telecom added in 2011. China Telecom steadily picked up 3G market share from its 2 larger rivals, China Mobile (HKEx: 941; NYSE: CHL) and China Unicom (HKEx: 762; NYSE: CHU) last year by aggressively courting consumers with a wide range of handsets, price plans and a solid network based on a globally used 3G standard. During that time its share of the market grew from just 19 percent at the start of 2011 to about 28 percent by the end of the year, as it took share away from Unicom and especially China Mobile, which didn’t strongly promote its 3G network based on an untested homegrown technology with numerous problems. China Telecom is clearly looking to focus its efforts in 2012 on 3G, based on the fact that nearly all of its new subscribers in December came from 3G, and all new subscribers in January were also 3G users. The company also made national headlines last week when it officially began selling a version of the iPhone 4S for its 3G network, capping months of talks with Apple in a deal that ended Unicom’s 3-year-old monopoly on iPhone sales in China. Initial sales for the iPhone on China Telecom’s network were reasonably strong, and I expect we’ll hear more about the company’s ambitious plans for both the iPhone and its broader 3G strategy when company executives talk to the media at their press conference on March 20 to discuss 2011 results and their 2012 outlook (earnings calendar). Given its aggressive marketing, solid technology and strong range of products, I wouldn’t be surprised at all to see executives reiterate a goal of adding 50 million 3G subscribers this year, leading to profit erosion in the short term but building a stronger long-term base for the company to pose a serious 3G alternative to its 2 bigger rivals.

Bottom line: Remarks by China Telecom indicate the company plans to turn up its aggressive 3G campaign this year, challenging its 2 rivals for dominance in the space.

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