China Mobile gets 4G edge, iPhone coming?
China Mobile could be the first of China's three telcos to get a 4G license, and could launch commercial service and an iPhone deal by year-end
The latest reports on Beijing's plans to issue 4G mobile licenses look like good news for China Mobile (0941.HK; NYSE: CHL), which could lay the groundwork for China's largest telcoms company to reach a highly anticipated deal to finally offer an Apple (Nasdaq: AAPL) iPhone for its network. But the news isn't completely positive for China Mobile, as the latest reports also strongly imply that the nation's other two carriers will both be allowed to develop 4G networks using mature, globally developed technologies. By comparison, China Mobile has been forced to build its 4G network using a problem-plagued homegrown Chinese technology called TD-LTE, and had been lobbying hard for the regulator to require one of its rivals to use that standard also.
All that said, let's take a look at the latest headlines, which say the Ministry of Industry and Information Technology (MIIT) is likely to give out 4G licenses on a staggered basis rather than all at the same time. The reports say that China Mobile would be the first to benefit under this kind of staggered approach, and could receive its 4G license as early as October.
This kind of staggered approach looks like a way for the MIIT to reward China Mobile, which has been aggressively building up its 4G trial network for the last two years and could quickly convert it to commercial use once the licenses are issued. China Mobile has complained nearly nonstop since it was first required to use another homegrown Chinese standard when the MIIT issued 3G licenses around five years ago. Problems with China Mobile's 3G network, combined with lukewarm promotion, have caused it to loose steady market share to rivals China Unicom (0762.HK; NYSE: CHU) and China Telecom (0728.HK; NYSE: CHA), which were both allowed to build 3G networks based on globally developed standards.
If these latest reports are true, China Mobile could get an important edge of up to half a year over both Unicom and China Telecom in the 4G space. That's because China Mobile could probably offer commercial 4G service within a month of receiving its license, meaning it could offer such service by the end of this year. Unicom and China Telecom would presumably receive their licenses perhaps by December or in the first quarter of 2014. But they have been much slower in building their 4G networks, meaning they probably couldn't realistically offer commercial 4G service until the middle of 2014 at the earliest.
China Mobile's share of the 3G market now stands at about 40 per cent, far less than its 63 per cent share for the broader mobile market which also includes many 2G subscribers. If it gets a 4G license in October, I would expect the company to quickly drop its 3G promotions and aggressively boost 4G. That would allow it to quickly build up a subscriber base of 10 million or more users by the time Unicom and China Telecom began to offer rival services.
China Mobile is also very likely to push hard to finally reach a deal to offer the newest version of Apple's popular iPhone with its commercial 4G launch. The timing looks relatively good, since media are speculating the next iPhone 6 is likely to be released around the end of this year, or about the same time China Mobile would launch its 4G service. China Mobile is the only one of China's three telcos that doesn't offer iPhones for its network, and has been in talks with Apple for much of the last three years on a deal.
But technology issues due to its use of homegrown technology have prevented a deal up until now. TD-LTE is reportedly much more compatible with other global standards, which should make it easier for Apple to develop a model for China Mobile's 4G network. Apple should also like the fact that a number of other major telcos outside China are also building TD-LTE networks, further boosting the chances that China Mobile will finally get its own iPhone deal with the launch of its 4G service.
Bottom line: China Mobile could be the first of China's three telcos to get a 4G license, and could launch commercial service and an iPhone deal by year-end.
To read more commentaries from Doug Young, visit youngchinabiz.com