China's Telcos Eye Life After 4G
At this rate, it will not be long before China Mobile's biggest problem is the shortage of customers not using 4G services.
Yet again, the Chinese mobile giant has reported a jaw-dropping number of new 4G customers in a single quarter -- in this case, the first three months of 2017. About 33 million subscribers joined the operator's 4G service over that period. That's like converting the entire population of Peru to the higher-speed mobile technology.
And most of the operator's 4G customers have, indeed, been converted from 2G and 3G services. Overall mobile customer numbers rose by just 7.6 million -- not even the population of Switzerland -- to give China Mobile Ltd. (NYSE: CHL) about 856 million in total. Two thirds are now using 4G.
This is paying off handsomely for China Mobile on the financial front. Revenues were up 3.7%, to 184 billion Chinese yuan ($26.7 billion), compared with the year-earlier quarter. Profit attributable to equity shareholders rose by the same amount, to RMB24.8 billion ($3.6 billion).
It is also happening despite the 4G challenge from smaller rivals China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA), which have not been able to subdue China Mobile despite their best efforts.
China Unicom, which reported its own first-quarter results earlier today, managed about 18 million 4G customer additions in the first three months of the year, giving it nearly 123 million in total (about 46% of its mobile customer base).
Yet to report first-quarter figures, China Telecom picked up nearly 10 million 4G customers in January and February, leaving it with nearly 132 million altogether (or 60% of its mobile customer base).
These rates of growth are impressive by any ordinary measure. Yet all three operators are selling the bulk of new 4G subscriptions to existing subscribers. That gives China Mobile a massive advantage that its rivals can do little about.
On a universally positive note, all three companies are enjoying growth even as they reduce their capital expenditure. With 4G networks rolled out fairly extensively in the country, operators can afford to sit back and reap the rewards of earlier investment activity. (See Chinese Telco Capex to Fall 13% This Year.)
But they cannot exactly rest on their 4G laurels. As China Mobile's figures show, the time is approaching when there will be relatively few customers left to convert to 4G. And as services are "upsold" to late entrants and lower-income segments of the market, operators may need to cut prices.
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That's why terms like "cloud," "enterprise" and "IoT" are showing up more frequently in the Chinese operators' earnings reports. Just like operators in much smaller and more developed Western markets, China Mobile and its competitors are looking outside their traditional consumer markets at a range of new business opportunities.
They might be under less immediate pressure than, say, a Telefónica or Telecom Italia SpA (NYSE: TI). But their involvement in initiatives such as ONAP arguably puts them at the very forefront of the operator community in some key areas. They certainly cannot be accused of complacency. (See ONAP Makes Splashy ONS Debut.)
"The group is at a critical stage of transformation of its development," said China Mobile in its latest earnings release, flagging "the expansion of the corporate customer market as well as the deployment of emerging business" as critical factors.
At industry events, both China Mobile and China Telecom can increasingly be heard discussing their involvement in smart city initiatives, or efforts to pioneer the rollout of new IoT services.
None of this means China's operators will be able to carry their 4G successes into new markets. And right now those markets account for a small share of revenues.
But as 4G growth tapers off, they will become even bigger priorities. With their enormous scale, government backing and the still-growing Chinese economy, China's telcos have advantages and opportunities that operators elsewhere do not.
For the last couple of years, China's telecom market has been all about high-speed mobile services for consumers. In the next couple, that may quite dramatically change.
— Iain Morris, , News Editor, Light Reading