China Mobile’s 4G Campaign Strengthens With 19 Million Adds In June

China Mobile‘s (NYSE:CHL) 4G campaign continues to gain momentum, driven by its first mover advantage, strong network quality and discounting. ^[1] The worlds largest carrier in terms of subscribers added a whopping 19.3 million 4G subscribers during the month of June, bringing its 4G subscriber base to 189.66 million. In comparison, smaller rivals China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) added 1.82 million and 5 million high-speed (3G and 4G) subscribers, respectively, in the same period. ^{[2] [3]}

China Mobile’s 4G numbers were largely driven by internal migrations, with 2G and 3G subscriber losses standing at 10.60 million and 7.87 million, respectively, while net subscriber adds came in at 861,000. Several reports in the media towards the end of last year indicated that the carrier had decided to gradually phase out its 3G network in light of waning demand and rapid 4G adds. ^[4] The latest numbers continue to reflect this revised strategy of focusing solely on promoting its 4G network. Since the beginning of this year, the carrier has gained over 99 million 4G subscribers at the expense of losing about 31 million 3G and 58.1 million 2G subscribers, resulting in a net gain of 10.56 million users in the first half of the year.

China Mobile Leverages Its First Mover Advantage

China Mobile continues to benefit from the fact that the Chinese government only recently awarded full FDD-LTE 4G licenses to carriers, and the smaller players intend to build out their 4G networks using the FDD-LTE standard. The lack of FDD-LTE licenses had prevented China Unicom and China Telecom from rapidly expanding their 4G networks in the country since their existing wireless networks (WCDMA 3G) are more compatible with FDD-LTE, unlike China Mobile’s TD-SCDMA 3G network. China Mobile’s 3G network is compatible with the TD-LTE 4G standard, for which licenses were awarded by the government in December 2013. This helped China Mobile grow its 4G subscriber base exponentially from just over 1.3 million users in February 2014 to 90 million in December 2014 to more than 189 million users at the end of June 2015.

High Speed Mix Inches Towards 50%

China Mobile’s total wireless subscriber base at the end of June stood at about 817 million, including over 382 million high speed (3G & 4G) users. The carrier has a dominant share of about 62.75% in the country’s wireless market, reporting an improvement of close to 40 basis points since the start of the year, by our estimates. China Unicom comes in a distant second, holding about 22.25% of the market, while China Telecom holds roughly 14.73% of the market. The growth in high speed subscribers over the last year has helped China Mobile improve its 3G/4G mix from just 25% in 2013 to almost 49.5% at the end of June. The smaller two carriers still have a greater high-speed mix (54.5% and 68.4% for China Unicom and China Telecom respectively), owing to their high 3G penetration levels.

ARPU Effects Of 4G

The rapid proliferation of 4G, coupled with discounted data rates, resulted in data traffic growing by a whopping 158% year-over-year in Q1 2015 (the most recent data available). While this should have helped China Mobile significantly improve its ARPU (Average Revenue Per User), its monthly ARPU actually declined year over year in Q1 2015 to RMB 59 ($9.50). This was due to a rapid decline in traditional messaging and voice usage by subscribers, reflecting their gradual shift towards cheaper and more popular over-the-top applications such as WeChat. During Q1, revenues from SMS/MMS and voice services fell by 16% and 13%, respectively. However, the effects are likely to be transitory. Over the long term, China Mobile’s ARPU should improve as rising data traffic and possibly higher pricing more than compensates for the decline in voice and SMS usage.

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1. China Mobile Monthly Operating Data [↩]
2. Key Performance Indicators – Monthly, China Telecom [↩]
3. Operating Data, China Unicom [↩]
4. RIP: China Mobile’s TD-SCDMA 3G network (2009-2014), RC Wireless, Dec 17 2014 [↩]