This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for China Mobile (NYSE:CHL)
${header:potential}
Mobile Voice Service and Mobile Phones
- Mobile Voice Service & Mobile Phones EBITDA Margin: We estimate that this figure will decrease from 46.5% in 2011 to ~39% by the end of our forecast period due to the increasing competition from other service providers. However, there could be an upside of more than 25% to our price estimate if EBITDA margins remain at current levels. There could also be a downside of more than 15% to our price estimate if EBITDA margins fall lower to 35%. This depends largely on the company's ability to retain existing customers and also to increase its customer base.
- China Mobile's Share of Mobile Market in China : We estimate that this figure will decrease from 66.6% in 2011 to 63.8% by the end of our forecast period due to limited spectrum availability and increasing competition. However, there could be an upside of about 6% to our price estimate if the company is able to increase its market share at 70%. There could also be a downside of similar nature if the market share of the company falls further to 58%. This largely depends on the company’s ability to regain market share which it is losing to its competitors. Technological developments, better service and greater coverage area will be important factors for this.
Mobile Internet Service
- China Mobile's Internet Service Revenue Per Value Added User Per Month: We estimate that this figure will increase from $0.97 in 2011 to $2.24 by the end of our forecast period due to increasing popularity of smartphones and greater number of mobile data applications being developed. However, there could be a downside of 7% to our price estimate if the figure increases only to $1.50. An upside of similar nature will be seen if it increases to $3. This depends on the company's ability to outstrip competition from other mobile service providers, technologies and also other similar service offering industries.
${header:summary}
China Mobile is the largest mobile telecommunications service provider in the world.
China Mobile makes money primarily through its mobile voice facilities provided to both consumers and corporate. The company also provides value added services like Caller ID, Voice Mail and Data services to its users. The wireless Internet business and other data business are the high growth areas for the company.
However, the company does not offer landline phone services, which makes it different from not only its Chinese counterparts like China Unicom and China Telecom, but also from US telecommunication companies like AT&T and Verizon.
${header:sourcesofvalue}
The Mobile Voice Service and Mobile Phones division constitutes majority of China Mobile’s value mainly because of the following reasons:
High Revenue Per User
The Average Revenue Per Voice User Per Month was estimated to be $6.47 in 2011. In comparison, Revenue Per Value Added User Per Month is only $0.97 for Mobile Internet Service division and $0.95 for Mobile Music and MMS division in 2011.
Large Customer Base
China Mobile had a customer base of 650 million users in 2011 in the Voice division business. The number of value added users on the other hand, remained at around 590 million.
${header:trends}
Increasing smartphone sales
China is now the largest smartphone market in the world by volume, having crossed U.S. in the third quarter of 2011. Increasing smartphone adoption will help drive data revenues up since the average revenue per user generated from someone using a smartphone is far higher than any other phone. A huge subscribe base of more than 675 million puts China Mobile in a better position to tap the growing smartphone demand than its rivals in the wireless market. iPhone's arrival on China Mobile's network will give the carrier some much needed 3G boost.
Increasing Competition in Telecommunications Industry in China
Since the PRC Government encourages orderly and fair competition in the telecommunications industry in Mainland China, they have extended certain favourable policies to the company’s competitors in order to make competition more viable. In line with this the Government has taken restructuring initiatives to optimize the allocation of telecommunications in China and further asymmetrical measures might be seen. This has resulted in an increase in customer base, revenues and profitability for the competitors of China Mobile, marginally taking down the market share of the company with it.
Tariff Regulations by the Chinese government
Being state-controlled, China Mobile experiences frequent government intervention in its business in the form of tariff caps. In the past, its revenues have been adversely affected by reductions in tariffs and other changes in tariff regulations mandated by the Chinese government. Since prices are not decided by the market forces but by the government, we cannot identify a trend in market prices to forecast the risk. Government-mandated tariff adjustments may come without warning and affect profitability if the tariffs are lowered. Frequent regulations also serve to limit the company's flexibility to respond to changes in the environment and market conditions.
High Customer Growth Potential
There is high customer growth potential in Chinese telecommunications industry in all regions. Rural market largely remains untapped and has been recognised as a big potential for expanding customer base and increasing revenues. The Government’s initiatives for reform and development in rural areas further enhance company prospects.
Increasing Value Added Business
Value Added Business Revenues as a proportion of revenues has been steadily increasing and is expected to continue growing. This is because of increasing popularity of smartphones and greater usage of wireless internet on mobile phones by users. The company has also taken promotion initiatives in line with these measures. Mobile internet business is expected to show highest growth patterns.
Increasing 3G adoption
3G adoption in China has so far been slow with less than 13% of all mobile subscribers using 3G presently. However, China Mobile has been slowly but steadily adding 2-3 million 3G subscribers each month. Considering that the company has more than 650 mn subscribers on the slower 2G network waiting for a low-budget smartphone to jump on to the faster 3G network, it gives the company a huge area of growth in the future. Growing standards of living and an increasing supply of low-cost smartphones should drive the adoption rate up, and consequently, its data revenues. A potential addition of the iPhone to China Mobile's armoury should also see an increase in 3G adoption.
Trefis Forecast Rationale for China Mobile's Average Monthly Voice Revenue Per User
${header:what}
${forecast} refers to the average amount spent by China Mobile customers on voice communication in a month.
${header:historicals}
${forecast} has declined from $7.36 in 2007 to $6.47 in 2011. We expect the declines to continue.
${header:rationale}
Trefis considered the following factors for its forecast:
${header:supporting}
- Usage pattern of new customers
- The new customers have lower usage of mobile telecommunication services as compared to the existing ones.
- Most of the new users are from less prosperous rural areas, since market penetration in these areas is lower. These people do not have the capacity for high usage.
- Implementation of tariff adjustments
- Revenue from voice usage depends on the fees generated from it, which in turn has to be less than the maximum level of tariffs as set by the Government.
- Since the Government holds the right to formulate tariff and service charge standards, adjustments in the tariffs have led to a decrease in the general level of tariffs.
- The highly regulated environment limits the company's flexibility to respond to changes in the environment and market conditions.
- Intense competition among mobile telecommunication service providers
- Increased competition from both China Unicom and China Telecom, with shares of 20% and 13% respectively at the end of 2011 in the mobile market in China.
- Rapid growth in mobile penetration rate and increased competition are prompting them to offer certain discounts and promotional offers to remain competitive in terms of price and performance.
- The Government has extended certain favourable regulatory policies to the competitiors to encourage orderly and fair competition in the telecommunications industry in Mainland China.
- Growth potential in poorer regions
- High customer growth potential in the central and western regions of Mainland China, as well as in the small and medium-sized cities and rural areas has led to an increase in the number of users, taking the Average Revenue Per Voice User further down.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
DCF MethodologyView All Help Topics