How The Roaming And Long-Distance Tariff Cuts Impact Chinese Carriers

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Chinese wireless carriers will eliminate mobile roaming charges and fees for long-distance calls nationwide starting from October 1 this year. The move comes shortly after Chinese Premier Li Keqian delivered the government work report, promising to end these fees. The Chinese telecom sector has seen significant reforms over the last few years, as the government looks to provide more cost-effective communication services, as the economy gradually transforms away from manufacturing towards services. (related: A Look At Some Of The Recent Reforms In The Chinese Telecom Space) Below we take a look at the potential impact of the move on the performance of Chinese telecom companies.

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Data services have supplanted voice as the primarily growth driver for telecom companies globally, and the shift has been more pronounced in China. The country has seen its 4G user base rise from under 100 million in 2014 to roughly 770 million currently, with mobile data revenues also rising by over 70% during the same period.  Moreover, there has been an increasing shift towards over-the-top applications such as WeChat for voice, text and video communication. However, unlike more developed markets such as the United States, where roaming and voice based services are essentially offered for free along with data plans, Chinese carriers still derive a substantial part of their revenues from voice services. Margins for these services could also be relatively high, given the lower capital investments and legacy infrastructure.

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For instance, China Mobile‘s (NYSE:CHL) voice revenues stood at about RMB 120.43 billion ($17.4 billion), accounting for about 37% of its overall revenues over the first half of 2016. The carrier estimates that these roaming and long-distance fees account for about 8% to 10% of its total revenues. However, the net impact of the elimination could be lower than that as subscribers use more long-distance voice services in response to the lower pricing. Moreover, voice-based revenues have been steadily trending lower across carriers (down 14% over H1’16 for China Mobile) and the move could accelerate the shift in business model for wireless carriers. China Unicom (NYSE:CHU) expects the policy’s impact over the next year to be limited to RMB 1.5 billion ($217 million), as it began to make changes earlier than other carriers. This amounts to under 1% of its projected total revenues for 2017.

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