China Mobile is the largest wireless carrier in China with more than 765 million subscribers. The carrier controls almost 63% of the overall Chinese wireless market and will be looking to grab a substantial share of the fixed-line broadband market as well, which currently stands at 190 million subscribers.
We have a price estimate of $55 for China Mobile, which is about 15% ahead of the current market price.
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China Mobile’s Opportunity In Fixed-Line Broadband
China Telecom and China Unicom are the dominant players in the fixed-line broadband market, with approximately 52% and 36% market share (by subscribers) respectively. The total number of fixed-line broadband subscribers numbered 190 million in 2013.  In terms of revenue, China Telecom generated about $11 billion in sales from broadband in 2012 compared to about $7 billion generated by China Unicom, implying that the total Chinese fixed-line broadband market generated over $20 billion in revenues in 2012. This market has grown at a rapid pace historically, which is likely to continue in the future as the government implements its “Broadband China” plan.
China Mobile can utilize its expertise in telecom infrastructure development and its massive scale to compete with the established players. The company activated its fiber-optic backbone network with a bandwidth of 100 Gbps in June 2012 and started testing its fiber-to-the-home network, even before the government granted a license . The wireless major’s intensive preparations are demonstrated by the fact that it has launched its broadband service in some regions within a month of getting a license. Accordingly, we expect China Mobile to make significant inroads into the broadband market going forward, and grab market share from China Telecom and Unicom.
Fixed-Line Broadband Market Shake-Up Could Potentially Start A Price-War
The Chinese fixed-line broadband market gained about 19 million subscribers in 2013 over 2012 compared to over 180 million subscriber additions in 3G. While broadband penetration rate is only about 14%, wireless has over 90% penetration. Fixed-line broadband has lagged behind wireless (3G and 4G) by a huge margin because of several factors. Firstly, the rapid expansion of 3G and 4G services led to carriers focusing most of their capital towards building 3G and 4G infrastructure. Consequently, these companies invested less in fixed-line. Additionally, due to a lack of significant competition, the established players did not have much of an incentive to improve their service quality. This relatively low quality of service did not encourage new subscribers to join, nor did it encourage existing users to upgrade. This can be seen from the low penetration rate as well as low ARPU (Average Revenue Per User), which has stagnated to around $9 per month.
With China Mobile’s foray into fixed-line broadband, we expect the dominant players- China Telecom and China Unicom – to invest substantially in improving their services. Rumors suggest that China Mobile is aggressively pricing its service plans to attract new customers, which could allow it to capture market share relatively quickly.Notes: