Prospects clouded for China mobiles
The precipitous fall in share prices of China's leading mobile phone operators suggests investors are becoming more wary about the sector's growth prospects.
Latest figures show there are 117 million mobile users in the mainland, making it the world's second-largest market.
The Ministry of Information Industry (MII) is forecasting growth in user numbers will accelerate on the back of strong economic expansion, with China becoming the largest mobile market by 2003.
While subscriber numbers are rising fast, analysts and fund managers are concerned operators will see their earnings growth hit by shrinking average revenue per user (ARPU).
These fears were confirmed by China Mobile's interim results announced last Thursday.
Despite the fact that it had a strong 67 per cent increase in pro forma year-on-year growth in subscribers to 58.9 million at June 30, its total usage minutes rose by only 35.1 per cent.
What was worse was the decline in ARPU. China Mobile produced a faster-than-expected 39.5 per cent year-on-year drop in blended ARPU to 158 yuan (about HK$148.52), against market expectation of between 170 yuan and 160 yuan.
Rival China Unicom, which is scheduled to announce its interim results in mid-September, is also expected to see a decline in ARPU but on a smaller scale because of a lower base.
Joe Locke, telecoms analyst at ABN Amro said the surprise drop in China Mobile's ARPU showed that the mainland mobile market was very price sensitive and dominated by low usage pre-paid users.
Mr Locke said the first group of people to use mobile phones in China was the wealthiest 10 per cent of the population. New subscribers would be low income earners with low usage rates.
At the moment, about 70 per cent of China's mobile users are concentrated in high-earning cities in coastal areas.
In terms of revenues, the 12 provinces in western China account for only about 23 per cent of the country's total telecoms revenue.
Operators would have no choice but to cut prices in order to boost subscriber numbers, according to analysts.
'The key driver to keep the subscriber number growing [in China] is by price cuts,' said an analyst with an European brokerage house.
China Mobile has been losing market share to rival China Unicom, which enjoys a 'favourable discount' of 10 per cent to 20 per cent over China Mobile's tariffs as granted by the MII.
In March, China Mobile introduced bucket plans which cut its tariffs by 10 to 50 per cent.
Mr Locke expected there would be more price cutting by the two operators and that competition in the mobile sector would become more intense.
Analysts expect to see further falls in ARPU because of price cutting and the low usage.
Meanwhile analysts said the MII was expected to issue one or two new mobile licences next year in a bid to further increase competition following China's pending World Trade Organisation entry.
Another main concern was that China's mobile market was facing tremendous regulatory changes, which was also discouraging investors from the sector.
'The introduction of more competition and the one-way billing system are expected, the only thing uncertain is when,' a telecoms analyst said.
One fund manager said: 'The most important thing is that the strong growth story in China's mobile market is no longer valid, at least in the near future.'
This view is taking its toll on the operator's share prices. China Mobile extended its losses yesterday to drop another HK$2.15, or 7.38 per cent, to finish at a record low of HK$27.
China Unicom fell 5.07 per cent, or 55 HK cents, to finish at HK$10.30.
China Mobile and China Unicom have lost 55 per cent and 44 per cent of their respective market capitalisations since the beginning of the year.