China Mobile’s 4G Momentum Should Continue After Solid August Numbers

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China Mobile (NYSE:CHL), the world’s largest wireless carrier, added a record 20.45 million 4G subscribers in August, driven possibly by its strong network and aggressive discounting. [1]  The numbers mark the carrier’s best-ever monthly adds and its 4G subscriber base now stands at 229 million, exceeding its 3G user base. The strong 4G performance also helped the company grow its overall subscriber base by 1.37 million to 820 million. Now, the numbers are particularly impressive, coming at a time when there are concerns regarding a slowdown in the Chinese economy and higher competition for high-speed subscribers in the mainland, with the smaller two carriers – China Unicom and China Telecom – strengthening their respective 4G campaigns. Here’s a quick round-up of what’s driving the carrier’s 4G adds and what to expect going forward.

Early Mover Advantage, Network Edge Help Fend Off Competition

The smaller two carriers were issued their respective full FDD-LTE licenses earlier this year and both have set lofty targets for their 4G adds, increasing competition in a slowing wireless market. Moreover, China Mobile is setting up a joint venture infrastructure company with its two smaller rivals, and there have been concerns that this could undermine its network advantage, since this could alleviate the shortage of prime sites for smaller players, allowing them to speed up their 4G services roll-out. However, we believe that China Mobile should be able to hold its own and defend and grow its market share, since its network spans over 940,000 4G base stations, covering a total of 1 billion people. Moreover, the smaller two players use the FDD-LTE technology, as opposed to China Mobile’s TD-LTE standard and it could take time for them to ramp-up wireless infrastructure, missing the high-growth phase of the market. Separately, China Mobile should benefit from internal upgrades to 4G, since just 28% of its 820 million strong subscriber base is on the LTE service, while its overall high-speed mix stands at just 53%.

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Slowing Chinese Economy May Not Be A Major Issue

There have been increasing concerns around the health of the Chinese economy, amid weaker exports, lower projected economic growth and the sell-off in the stock markets. However, it seems unlikely that these concerns will hurt China Mobile’s 4G expansion plans.  Chinese Premier Li Keqiang has been pushing for an expansion of Internet access throughout the country as the government looks to make industries more efficient, as the manufacturing sector matures and the economy becomes more service-oriented. [2] The government has been pushing carriers to reduce pricing and China Mobile stated that it would reduce mobile data prices by 35% or more by the end of 2015. This compares to 20-30% cuts outlined by the smaller two carriers. [1] By slashing prices, the carrier will be targeting mass market migration to high-speed services. While ARPUs could remain under pressure for some time (about $9.80 during Q2) on account of this, it should improve meaningfully with time as data demand grows.

New iPhones Could Give 4G Adds A Bump In September-October

The launch of Apple’s new iPhone 6S and 6S Plus models could prove another near-term catalyst for China Mobile’s 4G campaign as it looks to add more premium, high-value customers. China is now the largest market for the iPhone, and Apple is working hard to ensure that this iteration of the device gets a stronger launch than the iPhone 6 did, despite the recent currency devaluation and economic headwinds. China will be among the first wave of markets to get the new smartphone, unlike the last year when Chinese customers had to wait close to a month after the initial launch. While the handset will be available across all three carriers, China Mobile stands to gain the most because its capacity to offer better promotions and owing to its better network.

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Notes:
  1. China Mobile Operating Data [] []
  2. China wireless carriers to slash contract prices, could spur 4G boom, Reuters, May 2015 []