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China Unicom

China’s telecom giants warn of earnings impact from tariff cuts, in compliance with Beijing directive

PUBLISHED : Tuesday, 07 March, 2017, 12:24pm
UPDATED : Tuesday, 07 March, 2017, 10:20pm

China’s three major telecommunications network operators expect their financial performance this year to be affected by the implementation of further tariff reduction measures directed by Beijing.

In separate regulatory filings late on Monday, operators China Mobile, China Unicom and China Telecom each pledged to substantially reduce internet private line access tariff for small and medium-sized enterprises (SMEs), cut international long-distance call tariffs, and from October 1, cease to charge domestic long-distance and roaming fees on their mobile handset subscribers.

They made those commitments following Premier Li Keqiang’s presentation of the 2017 Government Work Report at the 12th National People’s Congress on Sunday.

Li renewed his call to the country’s three telecommunications network operators to “raise speed, drop prices”.

He specifically asked them to completely remove domestic long-distance and roaming charges within this year, lower internet access and leased line fees for SMEs, and reduce international long-distance voice tariffs.

Both China Mobile and Unicom pointed out in their respective filings that further tariff reduction measures would have an impact on their revenue and net profit “to a certain extent”, without elaborating.

China Telecom said the measures would impact, in general, its “business operation ... to a certain extent”.

China Mobile’s share price advanced 0.35 per cent to close at HK$85.10 on Tuesday. China Telecom was up 0.28 per cent to HK$3.58, while Unicom rose 0.64 per cent to HK$9.38.

The three operators, which had a combined 1.3 billion subscribers as of January 31, already started removing domestic roaming charges and making domestic long-distance tariffs the same as local call rates as of the third quarter last year with their new customers, according to Jefferies equity analyst Edison Lee.

“Premiere Li’s request is to accelerate that pace,” Lee said. “We believe it will still create more earnings pressure in 2017 for the three telecommunications companies, even though the market has largely factored in the full impact as of 2018.”

Other analysts saw the downside risk from the reduced tariffs to be manageable for the three telecommunications network operators.

“Our overall judgement call is that the three telecommunications companies can handle it as demand should be strong, driven by substantial data traffic growth,” UBS Securities analysts led by Wang Jinjin said in a research note on Monday.

They estimated that China Mobile cancelled 60 per cent of domestic long distance and roaming fees at the end of last year. China Telecom and Unicom had each removed about 80 per cent of those fees in the same period.

In another report, Deutsche Bank research analysts said the state-backed measures may create a potential headwind to the telecommunications operators, but added that “sector revenue can grow, providing data price cuts are less severe than previously – as we understand should be the case this year”.