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China Telecom Racing Ahead Of China Unicom In Adding 4G Subscribers


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China Telecom ( CHA ) recorded another month of solid high speed subscriber gains and once again outpaced bigger rival China Unicom ( CHU ) in adding 4G subscribers. Compared to a dismal tally of 691,000 high speed (3G and 4G) subscriber adds by Unicom in April, China Telecom added 2.32 million 3G-4G users, its best monthly performance in 17 months. Since the start of the year, the third largest wireless carrier in China has added an average of 2.1 million high speed subscribers per month, which is over 62% higher than its average monthly gains last year. Its tally is even more impressive when compared to second largest carrier China Unicom, which has recorded a monthly average of just 73,750 high speed users this year, compared to its average tally of 2.2 million last year. (( Key Performance Indicators , China Telecom, May 2015))

China Telecom's performance was still dwarfed by market leader China Mobile, which gained about 10 million high speed subscribers in the same period. China Telecom ended the month with almost 190 million subscribers, about 1 million more than its tally at the end of March. In the first four months this year, China Telecom gained over 8.5 million subscribers which led to a rise of 25 basis points in its share in the Chinese wireless market to 14.6%. In the same period, China Mobile gained 40 basis points and China Unicom lost 65 basis points to report shares of 62.7% and 22.5%, respectively.

Taking into account China Telecom's impressive pickup in the 4G subscriber market in the last three quarters and improvement in wireless profit margins in 2014, we have revised our price estimate for the carrier to $63 , implying a market cap of $51 billion. We expect China Telecom to report earnings of $4.6 per share in 2015, which is in line with the consensus estimates compiled by Thomson Reuters.

See our complete analysis of China Telecom here

Cut In Data Prices

In its first big announcement following the grant of full FDE-LTE 4G licenses in February, China Telecom recently said that it plans a pricing cut of around 30% per megabyte of data by the end of this year. Considering that China Mobile and China Unicom also made similar announcements, it is likely to lead to a rapid rise in 4G adoption in China in the coming months. The price cuts should help China Telecom further improve its 3G-4G mix from current 67% levels, which is likely to have a positive impact on its ARPU (Average Revenue Per User) as well.

The carrier already has a 63% share of net user additions in the Chinese wireless market since the start of the year and price cuts should help the carrier further increase its high speed user base. For perspective, China Mobile and China Unicom have shares of 141% and negative 104% of net user additions in the Chinese wireless market in the last four months.

Chinese Wireless Subscriber Market

Ambitious 4G Goal

China Telecom has set an ambitious target of 120 million new user adds in 2015, 100 million of which are expected to be 4G customers. It reported a gain of about 10 million 4G users in the first quarter. This means that China Telecom will need to add an average of 10 million 4G subscribers every month going forward to reach its goal. We expect the carrier's high speed user adds to improve gradually from their current monthly average of about 2.1 million to double-digit figures towards the latter half of the year.

About 33% of China Telecom's 190 million total wireless customers are still on the slower 2G network, and the carrier is likely to encourage these customers to directly upgrade to 4G with discounts and special scheme offerings, in addition to encouraging its 3G customers to adopt the higher speed 4G. It is also likely to target 2G customers on rival networks considering that overall 3G-4G mix in China's overall wireless market is just about 51%. This essentially means that there are still about 640 million potential 3G-4G customers in China, which is over two times the U.S. population.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: CHA , CHU , CHL



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