China Mobile & Verizon: How Two Of The World’s Largest Wireless Carriers Compare

Verizon (NYSE:VZ) and China Mobile (NYSE:CHL) remain the largest wireless players in the United States and China respectively, with both companies viewed as benchmarks of sorts for investors seeking exposure to the telecom space in the world’s two largest economies. Below we take a look at how the two carriers compare in terms of their financials and operational performance.

See our complete analysis for Verizon and China Mobile

Verizon’s Smaller Subscriber Base Is Much More Valuable Than China Mobile’s 

China Mobile’s wireless subscriber base is over 7x as large as Verizon’s, and its market share in China stands at almost twice Verizon’s market share in the U.S. However, China Mobile’s customers are much less valuable, as ARPUs remain less than a fifth of Verizon’s, on account of its larger scale, lower per capita income levels in China and weaker data usage. (related: Why Do U.S. Consumers Pay Significantly More For Wireless Services?) The higher ARPU metrics translate into higher sales and thicker margins for Verizon. Verizon’s churn figures are also lower, likely due to its large mix of postpaid connections and also due to the fact that the U.S. is a more mature mobile market.

China Mobile’s Faster Growth

China Mobile’s subscriber adds stood at 17.4 million during the first nine months of 2016. In comparison, Verizon added just 1.6 million connections, most of which were non-phone devices. China Mobile has more potential for ARPU growth, as the carrier still has scope to improve its high-speed subscriber mix (~57% as of September 2016), while leveraging rapid growth in per-subscriber data consumption. For instance, the carrier’s monthly data traffic more than doubled during H1’16 to 589 MB. In comparison, U.S. mobile data users consume over 3x as much data (~1.6 GB of data per month during 2015).

China Mobile Is Practically Debt-Free

China Mobile remains almost debt-free, as it has relied on internal accruals to fund growth. In contrast, Verizon’s debt stood at around $106 billion as of September 2016, on account of its recent acquisitions. This means that China Mobile’s cash flows can be used to improve its dividend and capital expenditures, rather than servicing debt. China Mobile’s projected capex of roughly $27 billion for 2016 is almost $10 billion ahead of Verizon’s expected figure, as the carrier continues to expand its data network.

Valuation

Both stocks have forward P/E ratios (based on 2017 earnings projections) of ~14x, despite China Mobile’s stronger growth prospects both in terms of high-speed subscriber growth and ARPU. This is likely due to the higher risk profile of China Mobile’s stock. The carrier is state-controlled, and experiences frequent government intervention in its business in the form of tariffs and technical regulations. Verizon’s risk profile is comparatively lower, given its high-quality customer base and its focus on the United States, a more mature market.

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