China Telecom Beats China Unicom Again In High Speed Subscriber Adds

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China Telecom (NYSE:CHA) continued to show steady improvement in its performance in the Chinese wireless market in October, as it gained about 2.1 million new high speed (3G and 4G) subscribers. This marked the eighth consecutive month of improvement in high speed user adds for the carrier, taking its total 3G-4G user base to about 115 million. It was also the third time this year that China Telecom recorded more monthly high speed user adds than China Unicom (NYSE:CHU), which recorded a gain of 1.15 million, although it still lags significantly behind market leader China Mobile (NYSE:CHL), which reported gains of about 12 million high speed subscribers in the same period. [1] [2] [3]

China Telecom had been struggling with subscriber additions since December, when China Mobile launched its 4G service and formalized the iPhone deal with Apple (NASDAQ:AAPL). However, the carrier has started to recover from those losses, especially after progressively rolling out its FDD-LTE 4G handset service in July. In addition to the recent 4G trial licenses issued by the government, the third largest Chinese carrier stands to benefit in the near term from the introduction of new 4G handsets on the carrier’s network, a reduction in handset subsidies, a favorable revision to interconnection fees and the establishment of a network infrastructure joint venture (JV) by all the carriers in the country.

We have a price estimate of $56 for China Telecom, which is about 10% below the current market price.

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See our complete analysis of China Telecom here

New 4G License Aiding Subscriber Adds

The Chinese government recently awarded China Telecom a trial license for setting up its 4G network on a combination of the FDD-LTE and TD-LTE technology standards. A report in the media also suggested that the company is likely to receive the official hybrid LTE network license by early 2015. [4] This is a significant development because a hybrid 4G network could help the company revive its declining user base, compete against China Mobile and China Unicom and regain its lost share in the Chinese wireless market. China Telecom had so far refrained from aggressively developing a 4G network because the TD-LTE 4G licenses awarded by the government in December last year were incompatible with the carrier’s existing WCDMA 3G technology.

China Mobile is the only carrier in the country with an established 4G network, because its homegrown TD-SCDMA 3G network is fully compatible with the TD-LTE technology. Owing to its network compatibility and first mover advantage, China Mobile has been able to race ahead of rivals in attracting new subscribers. It has added about 106 million high speed subscribers since the start of 2014, accounting for about 75% of all high speed user adds in the country in this period. In comparison, China Telecom managed to add only about 11.5 million 3G/4G users, accounting for just over 8% of all high speed user adds.

China Telecom has expanded its 4G network trial to 41 cities, including Beijing and Guangzhou. The carrier earlier stated that it plans to invest about RMB 80 billion ($13 billion) in capital expenditures this year, half of which would be spent on rolling out its 4G network. With the trial 4G license in place, we expect China Telecom to start aggressively expanding its 4G presence across the country and improve its monthly subscriber additions going forward.

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Notes:
  1. Key Performance Indicators, China Telecom, Nov 2014 []
  2. Operating Data, China Unicom, Nov 2014 []
  3. Operation Data, China Mobile, Nov 2014 []
  4. Trial 4G license granted, The Standard, June 24 2014 []