TELECOMS: China Telecom Zips in 4G, Unicom Lags

By on

Bottom line: China Telecom could become less aggressive in 4G this year under its new leadership, while China Mobile remains the investor best bet among China’s 3 carriers due to early entry to 4G.

China Telecom zooms in 4G

It’s been a long time since I’ve looked at the bigger China telecoms landscape for total subscribers and 4G service, so the release of the latest monthly data from the nation’s 3 major carriers seems like a good opportunity to assess the situation. Not surprisingly, all 3 have posted anemic overall subscriber growth since the start of the year due to an increasingly saturated market. But a look at 4G shows a more diverse picture, with China Telecom (HKEx: 728; NYSE: CHA) acting far more aggressively than rival China Unicom (HKEx: 762; NYSE: CHU) in the quest for new subscribers.

Before I go delve into the latest data, we should pause and recap the major developments of the last 2 years for context. Dominant carrier China Mobile (HKEx: 941; NYSE: CHL) became the first of China’s big 3 telcos to get a 4G license in 2014, which was followed about a year later by Unicom and China Telecom. That means the 2 smaller telcos have been courting 4G customers for about a year now, whereas China Mobile has had about twice as much time.

The conversion to 4G is critical, since a growing number of Chinese consumers are using their smartphones for data-intensive functions like web surfing and video streaming. Those functions are best executed over high-speed 4G networks, and data consumption is one of the main growth drivers for all 3 telcos as revenue slumps from traditional voice and texting services.

Against that backdrop, we’ll begin with the big picture data that showed the 3 telcos reported a combined 1.3 billion mobile subscribers at the end of May, up a scant 1 percent from the start of the year and roughly equal to China’s total population. In terms of market share, China Mobile continued to control nearly two-thirds of the market, while Unicom had about 20 percent and China Telecom had about 16 percent, similar to the past.

But the performance begins to diverge from there, with China Mobile and Unicom only adding about 1 percent to their subscriber bases since the start of the year. We should point out that Unicom’s base was actually shrinking for a while last year as it underwent perpetual reorganizations, so at least it has finally returned to positive growth. But the bigger story is the 3.5 percent subscriber growth for China Telecom, which seems to indicate it’s becoming a bit more aggressive than its rivals.

China Telecom’s 4G Growth Spurt

China Telecom’s relatively aggressive stance shows up more clearly in its 4G subscribers, who numbered 85 million at the end of May, accounting for a relatively high 40 percent of its total users just a year after the service’s launch. By comparison, Unicom’s 4G users totaled just 68 million, accounting for just 26 percent of its total users. Nearly 50 percent of China Mobile’s 835 million users now subscribe to 4G, though that high figure owes largely to the company’s one-year head-start over its 2 smaller rivals.

It’s always hard to say what’s happening inside these 3 opaque state-run giants, but one thing we do know is that Unicom and China Telecom switched chairmen last year in a type of leadership shuffle that’s quite common for China. (previous post) China Telecom’s new chief then got booted in a corruption probe,  and a replacement was named. But it appeared that China Telecom’s aggressive 4G promotion plan might have been the work of Wang Xiaochu, who was the company’s chairman until he got sent to Unicom last August.

If that’s the case, then it’s quite possible that China Telecom’s aggressive 4G posture could start to ease soon and perhaps Wang will bring his more aggressive approach to his new home at Unicom. Investors certainly don’t seem too bullish on China Telecom, whose shares have lost nearly half their value since a peak in April 2015. Then again they don’t seem too enthusiastic either about Unicom, whose shares are down by a similar amount. Investor favorite China Mobile is down by a more modest 26 percent.

All the opaqueness surrounding this trio, combined with their lack of individual personalities, has always made me reluctant to bet on any of the individual stocks. But in this case, China Mobile’s relatively strong progress in 4G, combined with other positive signs in its latest earnings report (previous post), appears to show that it’s probably the best bet of this laggard group for at least the next couple of years.

Related posts:

(NOT FOR REPUBLICATION)

(Visited 204 times, 1 visits today)