China Mobile Posts Solid Q3 Growth On 4G Migration, Subscriber Adds, ARPU Continues To Lag

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China Mobile (NYSE:CHL), the world’s largest mobile carrier, posted its strongest quarterly growth in at least five years during Q3 2015, likely driven by a continued migration to the company’s 4G services, moderate subscriber growth, strong terminal sales and better cost management. Profit attributable to equity shareholders for for the third quarter rose by about 13% year over year, while revenues grew by about 10% from a year ago, based on figures derived from the carrier’s 9-month results published earlier this week. ((Unaudited Key Performance Indicators For The First Three Quarters Of 2015, China Mobile)) However, despite the strong 4G growth, the crucial average revenue per user (ARPU) metric remained under pressure. Below, we provide an overview of some of the factors that drove the carrier’s results for the quarter and what to expect from going forward.

Trefis has a $63 price estimate for China Mobile, which is almost in line with the current market price.

See our complete analysis of China MobileChina UnicomChina Telecom

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4G Drives Subscriber Growth

China Mobile posted its best-ever quarterly 4G additions during Q3, adding roughly 58 million 4G subscribers while year to date 4G adds came in at about 157 million. The carrier now has a total of 248 million 4G users, surpassing its 3G base of about 195 million subscribers. [1] There’s still a lot more room for growth, since the carrier’s 4G mix stands at just 30%, while its overall high-speed mix stands at about 54% well below its smaller rivals China Telecom and China Unicom. However, the carrier’s overall subscriber base grew by just about 3% year-over-year to 823 million as of the end of September, and the metric could slow further as the Chinese mobile market continues to saturate and as the smaller players bolster their 4G services. Stronger 4G LTE services by the smaller two players could reduce the supply of customers defecting to China Mobile looking for superior data speeds. Note that the below table summarizes the state of the Chinese wireless market as of August 2015, as Unicom and Telecom have yet to report September figures.

Chinese_Wirless_Aug15

ARPU Continues To Shrink, Will Face Near-Term Pressure

Although the carrier’s mobile data traffic was up by about 151% year-over-year for the first nine months, its monthly ARPU fell to about RMB 61 ($9.60) from about RMB 63 ($9.92) during the same period last year. The was likely due to discounting for 4G data services as well as declines in voice and SMS/MMS usage. The government has been pushing carriers to reduce data pricing in order to foster mass market adoption of 4G services, and China Mobile stated that it would reduce mobile data prices by 35% or more by the end of this year. This compares to 20-30% cuts outlined by the smaller two carriers. [2] Separately, China Mobile also introduced an unused data traffic carry-over service for its mobile subscribers, effective October 1, and this is likely to negatively impact its ARPU and profitability in Q4. However, we believe that the metric should improve with time, as rising data traffic more than compensates for the lower per-gigabyte pricing and effects of the data carry-over services (related: Why We Believe China Mobile Should be Able Contiune It 4G Momentum).

Key Earnings Data For Nine Months Ended September 31, 2015

  • Operating Revenue grew 6.5% year-over-year to RMB 513 billion ($80.7 billion).
  • EBITDA rose to 9% to RMB 192 billion ($30.2 billion).
  • Profit attributable to equity shareholders grew 3.4% to RMB 85 billion ($13.4 billion).

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