Chinese telecom companies China Unicom (Hong Kong) Limited (
) and China Telecom Corp. (
) have won regulatory approval to expand their 4G network trial to
40 cities, up from the previous 16.
In Jun 2014, the carrier duo received the green signal from the
Ministry of Industry and Information Technology (MIIT) to conduct a
pilot test on two of the most recognised 4G LTE (Long Term
Evolution) standards in 16 different cities. The recent sanction
extends the trial by 24 additional cities in the mainland, which
includes the likes of Beijing, Guangzhou and Tianjin, among
Both the companies run their network trial by integrating the
TDD-LTE (Time Division Duplex) and FDD-LTE (Frequency Division
Duplex) standards. The hybrid options will allow the carriers to
provide better connectivity through faster Internet download
However, both China Unicom and China Telecom are way behind
China Mobile Limited (
), in terms of adding new LTE customers. China Mobile secured a
competitive edge in 4G owing to the compatibility of its 3G
standard (Time Division Synchronous Code Division Multiple Access
or TDSCDMA) with TD-LTE. The largest operator by subscriber base,
China Mobile currently has 14 million LTE
China Unicom, the second largest carrier in China, reported top
and bottom-line growth in the first half of 2014, while China
Telecom, the smallest operator in the mainland, witnessed revenue
growth while earnings dipped year over year.
Though initially expensive, we believe 4G will provide a
significant opportunity for the two Chinese operators as this
sector is still under-penetrated in the nation.
We see this network expansion as an effort by the carriers to
curb market leader China Mobile's dominant foothold in the 4G
market. However, to do so, both the carriers need to enhance their
handset portfolios, which will duly support their hybrid 4G
network. Further, the companies must also focus on aggressive
promotion and competitive tariff plans to earn a larger share of
the pie, which can, however, impact their margins in the short
China Telecom currently carries a Zacks Rank #3 (Hold) while
China Unicom has a Zacks Rank #5 (Strong Sell). A stock worth
considering within this sector is SK Telecom Co Ltd. (
), which bears a Zacks Rank #2 (Buy).
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