What Drove China Telecom’s First-Half Earnings Beat?

by Trefis Team
China Telecom
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China Telecom (NYSE:CHA), the smallest of the three major Chinese wireless carriers, published its financial results for the first half of 2018 on Monday, beating market estimates. While operating revenues rose by 4.7% to RMB 193 billion ($28 billion) driven by a higher number of 4G subscribers, net profit grew by 8.1%.year-over-year on account of better cost management. Below, we take a look at some of the factors that impacted the company’s business and what lies ahead.

We have also created an interactive dashboard analysis on the outlook for China Telecom in 2018, which allows users to modify key drivers and arrive at their own valuation estimates for China Telecom.

Wireless Business Updates

The company added about 32 million subscribers over the first half of the year, well ahead of its larger rivals China Mobile and China Unicom, who added just about 18.60 million and 18 subscribers, respectively, in the same period. China Telecom’s comparatively stronger growth is being driven by improving 4G coverage and its promotion of larger data traffic products, which are increasingly popular with subscribers. However, like the other two operators, the company’s overall ARPU faced pressure on account of lower data tariffs and the government’s move to slash mobile roaming and long distance charges. While overall ARPU declined by about 7.7% to RMB 52.4 ($7.65), 4G-only ARPU fell by 13% to 58.3 ($8.51).

China Telecom’s 5G Plans

The company also provided some updates on its plans to launch the next generation of 5G services, indicating that commercial trials could begin by 2019, with the commercial rollout beginning from 2020. The company intends to begin deployment in just a few locations where demand is likely to be higher while noting that both 4G and 5G will co-exist for an extended period with coordinated interoperability. China Telecom could have some advantages over its rivals in the rollout, considering that it is China’s largest broadband provider with the world’s largest fiber backbone network, which could act as backhaul for 5G data traffic.

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