China Telecom’s First Half Results Expand On Growing Subscriber Base

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China Telecom

China Telecom (NYSE:CHA), the third largest Chinese wireless carrier and largest broadband provider, published its H1 2016 interim results, posting relatively strong growth driven by its expanding subscriber base and a growing mix of customers availing higher-value 4G and fiber-to-the-home services. [1] Below we take a look at some of the key factors that drove the carrier’s performance for the quarter.

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  • Revenues expanded vs. H1 2015, amid wireless and wireline broadband subscriber growth, a higher mix of 4G customers and soaring mobile data consumption . That said, growth in USD terms was impacted by the RMB depreciation (about -4.8% y-o-y).
  • EBITDA margins declined by 190 bps, partly due to the transfer of the firm’s wireless tower assets to the China Tower JV.  The tower usage fees ($1.05 billion for Q1) that China Telecom incurs is greater than the savings in depreciation and maintenance expenses.

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  • China Telecom’s wireless subscriber base expanded by about 8% compared to last year, driven by strong uptake for its 4G services and weakness at China Unicom, which lost customers over FY2015. While the carrier’s overall ARPU expanded amid a higher mix of high speed users (44% on 4G, up 29% year-over-year), 4G ARPU saw a a decline due to the government’s speed improvement and tariff reduction requirements.
  • China Telecom is also deepening its collaboration with China Unicom to improve its 4G network, in a move that could accelerate network construction while saving capex costs. The two carriers have formulated projects for sharing 60k 4G base stations as well as about 14,500 km of transmission fiber cables.
  • The wireline broadband business also expanded, amid a growing subscriber base and stronger penetration of the firm’s fiber-to-the home technology (75% of total connections). This has enabled China Telecom to improve its broadband market share to 62% in areas where its wireline services are operational.
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Note: While the company reports its results in RMB, we have converted key financial metrics into USD for this article. Year-over-year growth figures may diverge from the company’s reported metrics, on account of the depreciation of the RMB vs. the USD.

See our complete analysis for China Telecom 

Notes:
  1. China Telecom Press Release []