‘China Mobile is set to become a cash machine’: Riches lie in store as carrier readies for 4G but rivals still playing catch-up

Company eyeing nationwide roll-out of 4G infrastructure whereas other players targeting affluent cities as they slowly close the gap

PUBLISHED : Tuesday, 05 January, 2016, 7:08pm
UPDATED : Tuesday, 05 January, 2016, 7:08pm

China Mobile, the world’s largest wireless network operator by subscribers, is poised to drive up its profits this year as the company marks the final stage of its rapid 4G infrastructure roll-out across the country.

Analysts said China Telecom, which recently lost its chairman due to a graft investigation, and China Unicom would not fare as well, but are expected to close the gap with China Mobile on 4G coverage in urban areas.

“China Mobile is set to become a cash machine as capital expenditure falls and earnings accelerate,” said senior analyst Chris Lane, lead author of Bernstein’s telecommunications industry forecast published on Tuesday.

Bernstein estimated that China Mobile will record a 16 per cent increase in year-on-year net profit for the 12 months to December.

“This year will represent the final phase of their three-year, 4G-led turnaround,” Lane said.

He pointed out that China Mobile’s 4G subscriber and data usage growth has translated into a “superior financial performance”.

Shang Bing, the chairman of China Mobile, has said that the operator was targeting 500 million 4G subscribers by the end of this year.

“We have no doubt that is achievable,” said Lane.

He added that China Mobile, which was the first mainland operator to push 4G services from December 2013, was projected to have 307 million 4G subscribers at the end of last year.

As of November 30, China Mobile had 287.32 million 4G users out of its total subscriber base of 825.19 billion.

The operator reported in October a 3.4 per cent rise in net profit for the nine months to September to 85.42 billion yuan (US$13.1 billion), compared with 82.6 billion yuan in the same period in 2014, on the back of its 4G services expansion across the country.

Its revenue for the nine months to September rose 6.5 per cent to 512.74 billion yuan, up from 481.23 billion yuan a year earlier.

“We conclude that revenue trends are solid,” said Anand Ramachandran, the head of Barclays’ telecommunications, internet and media equity research in Asia, excluding Japan.

China Unicom, the world’s fourth-largest wireless network operator by subscribers, can expect its profits to remain squeezed as its new head pursues a costly revamp of its 4G expansion plan.

“We believe China Unicom is now focusing on the right strategic priority ... but it will need time to turn its operations around,” Lane said.

Ramachandran said Unicom was hurt by the “continued loss of quality subscribers to China Mobile”.

Wang Xiaochu, who took over as chairman at Unicom in August, has ditched the previous leadership’s broad nationwide 4G roll-out plan to focus on deployments in major cities where affluent subscribers can be found.

Lane said China Telecom “will likely slow its competitive response to China Unicom’s change in strategy”, after chairman Chang Xiaobing resigned last month due to corruption charges over his time as Unicom boss.

“The network gap to China Mobile in the urban centres will be largely closed by Unicom and China Telecom, but large gaps in the rural and regional areas will remain,” Lane said.

Unicom had 180.24 million combined 3G and 4G subscribers as of November 30, while China Telecom had 141.03 million total 3G and 4G users in the same period.