China Telecom’s 4G Adoption Likely To Improve With Latest Approval For 4G Trial Expansion

China Telecom (NYSE:CHA) recently received approval from China’s Ministry of Industry and Information Technology (MIIT) to expand its LTE 4G trial to 15 more cities in the country, taking its total coverage to 56 cities. The new cities include Shaoxing, Taizhou, Changzhou, Xuzhou, Yangzhou, Yancheng, Qingdao, Tangshan, Baoding, Dalian, Zhongshan, Huizhou, Jiangmen, Wuhu and Yulin. This is the third instance of the MIIT allowing the carrier to expand its FDD-LTE/TD-LTE 4G trial in the last six months, after having given permission to start the trial in June. ^[1]

Reports in the media had earlier suggested that carriers China Telecom and China Unicom (NYSE:CHU) were likely to get full FDD-LTE/TD-LTE 4G licenses by early 2015. Their rapidly expanding 4G networks and market leader China Mobile‘s (NYSE:CHL) sustained dominant position in the Chinese 4G market certainly add weight to the speculation that the smaller carriers might be awarded full 4G licenses very soon. Adoption of China Telecom’s slowly expanding 4G trial network seems to be gradually picking up considering that the carrier’s high speed user adds (3G and 4G) reported a marked improvement following launch of its 4G network trial (China Telecom does not release separate 4G subscriber figures). The carrier also became a net gainer of wireless subscribers post-August 2014 after 5 months of consistent losses, and its budding 4G network is likely to have had a significant role in that. With the recent approval for trial network expansion, we expect the carrier to improve its 4G uptake further. ^[2] ((Key Performance Indicators, China Telecom, Dec 2014)) ^{[3] [4]}

We currently have a price estimate of $56 for China Telecom, which is in line with the market price.

See our complete analysis of China Telecom here

China Mobile’s 4G Monopoly

China Mobile’s 4G network has dominated since it received a TD-LTE 4G license in December 2013. Since the smaller carriers did not want to pursue TD-LTE technology for their 4G networks because of incompatibility issues with their existing WCDMA 3G technology, China Telecom has largely remained out of the 4G race so far. Its impact can be gauged from the fact that China Mobile has added close to 122 million high speed subscribers since the start of 2014, accounting for about 76% of all high speed user adds in the country in this period.

In comparison, China Telecom managed to add only about 13.5 million 3G/4G users, accounting for just over 8% of all high speed user adds. Even in terms of percentage increases in subscriber bases, China Mobile managed to increase its overall subscriber base by about 16% compared to China Telecom’s 7.3% increase, year-to-date. This growth is even more significant considering that China Mobile’s user base of 804 million subscribers dwarfs China Telecom’s total user base (184 million).

China Telecom: The Road Ahead

China Telecom now has approval to expand its 4G network trial to 56 cities across the country. The carrier earlier stated that it plans to invest about RMB 80 billion ($13 billion) in capital expenditures this year, half of which will be spent on rolling out its 4G network. With expectations of a full license by early next year, we expect China Telecom to start expanding its 4G presence across the country aggressively and improve its monthly subscriber additions going forward.

In addition to the TD-LTE/FDD-LTE 4G licenses, the third largest Chinese carrier stands to benefit in the near term from the introduction of new 4G handsets on its 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.

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1. Press Release, China Telecom, Dec 17 2014 [↩]
2. Trial 4G license granted, The Standard, June 24 2014 [↩]
3. Operating Data, China Unicom, Dec 2014 [↩]
4. Operation Data, China Mobile, Dec 2014 [↩]