China Mobile Q2 Preview: Will ARPU Recover?

We will be closely watching China Mobile‘s (NYSE:CHL) average revenue per user (ARPU) number when it publishes Q2 2015 earnings this month. Although the carrier has been posting operating revenue growth in recent quarters, driven partly by higher product sales, its ARPU has come under pressure on account of lower voice and SMS revenues (10% decline in 2014) and discounting related to its 4G campaign. While the company’s 4G customer adds have been impressive over the last 18 months, providing it with a stable and lucrative user base to grow revenues, competition is also heating up with China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) having received their full 4G licences earlier this year. ARPU is the primary value  driver for carriers, and we will be closely watching the company’s progress in bolstering these numbers this quarter.

We currently have a price estimate of $64 for China Mobile, roughly in line with the current market price.

See our complete analysis of China Mobile here

ARPU In Focus

During Q1’15, the carrier’s ARPU fell by roughly 5% year-over-year to 59 RMB ($9.50) as SMS, MMS and voice usage fell, reflecting the shift towards over-the-top applications such as WeChat and various VoIP services. Average voice minutes per user fell by about 6% year-over-year and SMS volumes fell by about 4.5% year-over-year. However, rising data traffic should more than compensate for the decline in voice and SMS usage going forward. 4G networks are about ten times faster than their 3G counterparts, thus encouraging subscribers to use even more data intensive applications such as video calling and high quality video streaming. This is also evident from the carrier’s data usage patterns. Mobile data traffic growth has been unprecedented, rising from 190.1 billion megabytes (MB) in Q1 2014 to over 490 billion MB in Q1’15, riding on the strength of its 4G adds. ^{[1] [2]} We will be interested to see if rising data traffic compensates for the decline in voice and SMS usage this quarter.

4G Competition From Smaller Carriers Is Heating Up

China Mobile is far ahead of its rivals in terms 4G adds, given its early mover advantage and its massive size and network presence. The company added about 46.6 million subscribers during Q2 2015, taking its total tally of 4G users to 189.7 million at the end of June, while its high-speed (3G/4G) mix has grown from just 25% in 2013 to almost 49.5% at the end of June (related: China Mobile’s 4G Campaign Strengthens With 19 Million Adds In June). However, competition has been increasing, since the smaller two players now have their full 4G licenses in place and have set aggressive goals for their high speed user adds. This is resulting in price competition in the market, and China Mobile has indicated that it will reduce mobile data prices by 35% or more by the end of this year (slightly higher than the cuts outlined by the other two carriers). While this discounting could put some pressure on ARPU in the near term, it should bring more users into the 4G fold, while helping to increase data consumption.

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1. Press Release, China Mobile, April 2015 [↩]
2. Press Release, China Mobile, April 2014 [↩]