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China telecoms operators expanding apace

Analysts return positive assessments of the sector as China Unicom shakes off mid-year woes

PUBLISHED : Wednesday, 23 December, 2015, 5:27pm
UPDATED : Wednesday, 23 December, 2015, 5:27pm

Strong November figures for China’s big three telecommunications network operators have cooled market talk over possible consolidation in the tightly-regulated sector.

The number of subscribers on 3G and 4G networks increased by 24.65 million, of which 20 million went to market leader China Mobile, according to Credit Suisse. The total number of mobile subscribers grew by 1.9 million, slightly down on October but an improvement on April to August.

“We believe that the China telecoms sector is currently enjoying a secular growth story,” wrote Credit Suisse analyst Colin McCallum in a research note this week, pointing to rising smartphone penetration, 4G subscriptions and data use.

China Unicom has been in the spotlight since registering a weak first half, with lacklustre mobile revenue and subscriber attrition from data plans. But last month it outperformed rival China Telecom, albeit from a lower base, adding 3.75 million 3G and 4G users.

The top bosses at China Telecom and China Unicom swapped positions in August – not the first time Beijing has played musical chairs with the leadership of the big three – after Unicom fell behind in mobile revenue and 4G coverage expansion.

Analysts say the reshuffle – which also saw a former senior regulator from the Ministry of Industry and Information Technology join China Mobile as its new chairman – means the sector is unlikely to be restructured in the near term.

“We think the government could perhaps give some time for the new [China Unicom] management team to turn around its operational performance,” wrote Daiwa analyst Ramakrishna Maruvada last month.

The government expects to improve results at the back of the pack by placing China Unicom under a chairman who oversaw expansion in coverage, revenue and market share at its competitor, and tasking him with more of the same. Early numbers suggest the gap is narrowing.

“Consolidation in the Chinese telecoms industry is unlikely within the next one or two years, as the profitability of smaller operators has not deteriorated to a level that would foster industry restructuring,” Fitch analysts wrote earlier this month.

Credit Suisse describes the competitive environment as “relatively benign” – as perhaps can be expected of state-owned firms who could swap management at any time – and says there is room for all three players to grow with the market, particularly given the appetite for mobile data.

“Since unlimited data plans have been avoided, rising data volumes should drive higher service revenue,” McCullum wrote.

Views are divided on potential cost savings from a possible China Telecom-China Unicom merger. Daiwa analysts say personnel cuts would be unlikely and different network platforms would need to be maintained. Fitch analysts point to savings from combined retail, wholesale and network operations.

The three operators are already tower-sharing, as mandated by the government, and Fitch analysts says more network-sharing could boost efficiency, although they don’t hazard a guess on whether such a move might speed or delay eventual consolidation.

Longer term, it may come down to whether just two competitors is an acceptable look, and whether telecommunications is high enough on the list of state-dominated sectors desperate for consolidation.

 
 
 
 

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