TELECOMS: China Telecom Outgrows Rivals
Bottom line: New data from the telecoms regulator shows that China Telecom outperformed its rivals last year, and could be set for strong growth as it consolidates around its high-speed wireless data business.
Just a month after I expressed disappointment at China Telecom (HKEx: 728; NYSE: CHA) for its lack of focus in the era of data services, newly released year-end financial data are making me re-think my view. That data appears to portray China Telecom as a company that has made the difficult transformation from a traditional fixed-line operator to a more wireless-focused carrier, meaning it could finally be poised for some strong growth this year as it rolls out a new state-of-the-art 4G network.
Just last month I wrote about a new management shake-up at China Telecom, which appeared to show a company in a state of disarray. (previous post) A big part of my view was also based on the fact that China Telecom posted little or no net subscriber growth for much of last year, as it added users to its newer 3G network but lost them at an equal or faster rate for its older 2G service. As a result, the company posted operating revenue growth of just 2.2 percent in the first three quarters of last year, while operating profit was essentially flat.
But now we’re getting some new full-year data from the industry regulator, the Ministry of Industry and Information Technology (MIIT), which provides an industry-wide comparison that puts China Telecom in quite a positive light compared with its 2 larger rivals, China Mobile (HKEx: 941; NYSE: CHL) and China Unicom. (HKEx: 762; NYSE: CHU). That data comes in an annual report that shows China Telecom beat out its 2 larger rivals in terms of incremental revenue increases for their core businesses last year.
According to the newly released data, China Telecom saw incremental revenue from its core businesses rise 1.4 percent, or by 4.1 billion yuan ($660 million) in 2014. (Chinese article) That outpaced a 1.1 percent gain for Unicom, which translated to 2.6 billion yuan in incremental new revenue. Both companies did far better than China Mobile, whose revenue from its core businesses actually fell 3.3 percent, or by a hefty 20.6 billion yuan.
China Telecom has spent the past few years trying to reposition itself as a true mobile carrier in the era of high-speed wireless communications. The company was once the monopoly operator of China’s national fixed-line phone network, but was rapidly losing market share to its wireless rivals in the 1990s and early 2000s.
It finally entered the wireless realm 5 years ago when it was awarded a license and received a small but cutting-edge mobile telecoms network as part of an industry reorganization. Since then it has largely abandoned promotion of its older 2G network in favor of newer 3G services. But then last year it eased on promotion of 3G as it also scaled back promotion of other services from its fast-fading legacy fixed-line networks.
This latest data appears to show that perhaps the slowdown wasn’t as bad as it appeared, since the company still managed to boost revenue for its core services at a more rapid rate than either of its larger rivals. The retirement and downplaying of many of its older services should put China Telecom on a more solid footing to move aggressively when it launches its commercial 4G service, probably around the middle of this year.
China Telecom’s stock rose sharply after the latest data came out, showing new signs of life after losing nearly 20 percent of its value over the last 4 months. These new figures do look relatively encouraging, because they provide a relatively objective look at how the company is doing in comparison with its 2 rivals. Accordingly, China Telecom could see some potential upside in the months ahead, especially in the second half of the year if its 4G network quickly gains traction after its launch.
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