How Tower Leasing Fees Are Impacting China Telecom’s Margins
China Telecom (NYSE:CHA), the third largest Chinese wireless carrier, saw its revenues grow by a strong 7% year-over-year during the first half of 2016, driven by its expanding mobile and wireline subscriber bases and surging data consumption, which is in turn improving mobile ARPU. However, despite the strong top line growth, the carrier’s EBITDA margins actually declined by 220 bps vs H1 2015. [1] This was driven primarily by the tower leasing fees (included under network operations & support expenses) that the carrier incurs, following the transfer of its tower assets to the China Tower JV. Tower leasing fees are currently about 10% higher than the cost of operating and maintaining its own towers. That said, the leasing fees are likely to come down going forward, as the unit fee per tower reduces, as more active base stations are put up each shared tower (higher sharing ratio), improving cost absorption. The table below shows how tower leasing fees impact the carrier’s margins.
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