Chinese Wireless Industry: 2015 In Review

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The Chinese wireless industry had a relatively interesting year. While the overall market – excluding MVNOs – expanded by about 17 million subscribers between January and November, the migration to high-speed data services was particularly notable. 191 million users moved to 3G/4G services, as China Mobile‘s (NYSE:CHL) 4G campaign continued to grow while the smaller two carriers – China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) – received their full FDD-LTE licenses in February, allowing them to roll out 4G services across the country. In this note, we take a brief look at how the three carriers fared in 2015, and what lies ahead.

China Mobile: Solid Subscriber Growth, Weak ARPUs

China Mobile, the largest Chinese wireless carrier by far, added a total of 18.5 million subscribers between January and November, with 130 million high-speed subscriber driven by its first-mover advantage and superior network coverage. The carrier now has a total of 825 million subscribers, with its 4G subscriber base standing at 287 million and its 3G subscriber base standing at about 179 million. [1] While subscriber growth has been strong, ARPU has been somewhat of an issue. While the carrier’s mobile data traffic was up by about 151% year-over-year for the first nine months of the year, its monthly ARPU fell to about RMB 61 ($9.40) from RMB 63 ($9.70) during the same period last year. This was likely due to discounting for 4G data services as well as declines in voice and SMS/MMS usage. The carrier also introduced an unused data carry-forward policy beginning from October, upon the request of Chinese Department of Telecommunication Development. This could also hurt ARPU and profitability in the near term.

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China Telecom: A Solid Start To The 4G Campaign

China Telecom, the smallest of the three wireless players, added a total of 29.5 million high-speed users and about 11 million new subscribers through November, as its strategy of focusing its initial 4G FDD-LTE network build-out in densely populated urban areas yielded results. [2]  The carrier is also likely benefiting from weakness at key rival China Unicom, which continues to see subscriber defections. This strength could continue going forward, as China Telecom is expected to be one of the biggest beneficiaries of the tower sharing joint venture it has formed along with China Unicom and China Mobile. The venture gives it access to a larger base of tower infrastructure (750k+ towers versus about 125k standalone) helping to quickly and effectively enhance its 4G network roll-out – particularly into suburban and rural areas. That said, things continue to be mixed on the ARPU front. Despite the soaring data consumption and growing high-speed mix, the carrier’s ARPU for the first nine months of this year stood at about RMB 55.5 ($8.55), representing a very moderate increase from FY 2014. Things could remain under pressure in the near term, as the company is also likely to be impacted by the unused data carry-forward policy, much like the other two carriers.

China Unicom: Subscriber Defections Amid 4G Hiccups

China Unicom lost about 12 million subscribers this year, while its high-speed adds came in at about 31 million as its 4G build-out saw some early hiccups. [3] The carrier had a total of 287 million wireless subscribers as of November. While China Unicom set an ambitious goal of building out its 4G coverage across Mainland China, it ended up spreading its deployment too thin, as it could not afford the sort of density that bigger and better-capitalized rival China Mobile achieved. However, there is some hope for a turnaround; 4G in China is still in its early stages – we estimate that penetration stands at less than 30% – and China Unicom has a large base of 3G subscribers who could migrate to 4G services.  Additionally, the tower sharing venture could help alleviate infrastructure and cost concerns as the company ramps up its 4G roll-out.

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Notes:
  1. China Mobile Operating Data []
  2. China Telecom Key Performance Indicators []
  3. China Unicom Operating Data []