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3G subscribers provides momentum for 4G services

3G subscribers provides momentum for 4G servicesAs of end of 2011, the world’s population exceeded 7 billion, 1.347 billion of which came from China, which had emerged as a strong nation. That means China’s population accounts for one fifth of the world’s total. Over 50% of Chinese now live in urban areas while the smartphone market is developing at a very rapid pace of 76%. As at 31 May 2012, there was a total of 6.5 billion mobile phone users across the globe and the number of mobile phone users in China surpassed 1 billion. Turnover of the Chinese telecommunications market reached RMB95 billion, representing a year-on-year growth of over 9%.

Number of 3G subscribers of China Mobile reached 176 million as at 30 June 2012 with the growth far higher than estimate. Competitions among the three major Chinese telecommunications operators have become fiercer. The operators know very well who the rivals are. Operators not only have to consolidate their statuses, they also have to explore new markets to further strengthen themselves to get ready for a change that can lead to the three major operators no longer dominating the market.

As an enormous ‘aircraft carrier’ in the Mainland and global mobile communications market, China Mobile (0941) possesses a considerable investment value with the current market value touching HK$1.7225 trillion. Looking at the technical aspect, it is inevitable for future quadcore smartphones to support the 4G TD-LTE system developed by China Mobile. More than half of the 3G transmission bases in China owned by China Mobile can become 4G technology platforms right after certain software upgrades. Therefore, although China Mobile does not hold a 4G license at present, it can still kick off its plan to develop 4G services business in first-tier cities and wait for a golden opportunity. When the high time comes, price of H-shares of China Mobile will have gathered enough momentum to break above HK$100. Recently, the Hong Kong unit of China Mobile announced it would use the FDD LTE network jointly established by Ericsson and ZTE for the launch of large-scale 4G TD-LTE services in Hong Kong, sowing the seeds for a blossoming in the 4G market in Mainland China.

China Telecom (0728), who does not possess 4G technology, is good at using iPhone 4S as a heavy weapon in the battle for attracting sales. Lately, it began selling iPhone 4S at 15% off with a view to generating a liquidity flow. Under the scheme, each person can purchase up to three iPhone 4S at a discount. In terms of capital strength, China Telecom is extremely strong. With reference to a research report compiled by Morgan Stanley, China Telecom acquired the CDMA unit of China Unicom with RMB40.4 billion in 2004, during which there was reorganization in China’s telecommunications industry. Furthermore, the parent of China Telecom bought CDMA network assets from the parent of China Unicom with RMB66.2 billion. According to the asset purchase blueprint formulated four years ago, China Telecom is going to purchase CDMA network assets from its parent in 2012. It is estimated these assets can generate RMB113.2 billion of revenue for China Unicom in the year 2013.

China Unicom recently announced that the net additions in its 3G subscribers in June equaled 3.02 million users, which provided certain support to the stock price, which outperformed that of China Mobile and China Telecom. As China Unicom has been striving for attracting more customers by offering low prices, a majority of analysts are bearish over the operator’s long-term APRU. The relevant revenue is projected to decline to RMB74 in 2014 from 2010’s RMB124. That means a significant decrease of RMB50 in four years’ time, which inevitably affects the medium-term profit. Chang Xiaobing, chairman and chief executive officer of China Unicom, has stressed on a number of occasions that the services charges cannot be lowered continuously. If the charges have fallen to a level that fails to allow the operator to build hardware, consumers would be the victims, he said. At the moment, the group’s management would not follow the example of China Mobile, who ordered a large quantity of TD-SCDMA smartphones of the latest versions from Samsung, HTC and Motorola. They will not follow the example of China Telecom either, who negotiated with major handset producers like Apple, Samsung, HTC and Motorola over the development of CDMA-2000 smartphones tailored for the customers of China Telecom. China Unicom is going to target the medium to low-end telecommunications market with WCDMA, hoping to challenge the TD-SCDMA and CDMA-2000 systems provided by its rivals with the story of David and Goliath in mind.