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Chinese telcos ride strong enterprise demand

Soaring demand for enterprise services, including 5G, has propelled China's three big telcos to some strong Q1 results.

The two smaller operators, China Telecom and China Unicom, enjoyed a big earnings bump, with net income up 11.92% and 20.6% respectively, their Q1 filings show. Market leader China Mobile recorded a more modest 6.5% gain.

Soaring demand for enterprise services, including 5G, has propelled China's three big telcos to some strong Q1 results.   (Source: zhang kaiyv on Unsplash)
Soaring demand for enterprise services, including 5G, has propelled China's three big telcos to some strong Q1 results.
(Source: zhang kaiyv on Unsplash)

All three continued to ride the surge in demand from Chinese business for cloud, digital transformation and 5G private networking services.

Business is booming

China Telecom said its industrial digitalization business, which includes cloud, data center and smart solutions, grew 23.2% to 29.4 billion yuan (US$4.5 billion). The business is now as large as the fixed-line unit, both accounting for just under a quarter of total revenue.

China Unicom boosted revenue at its industry Internet unit by 34% to 19.4 billion yuan ($3 billion), with cloud services accounting for 9.1 billion yuan ($1.4 billion) following a 114% growth spurt, while data center revenue improved 14.5%.

China Mobile's data and ICT business boosted sales 50.9% to 23.7 billion yuan ($3.6 billion), driven by what it called a focus on mobile cloud and "large-scale replication of industrial products with high usage."

But a sharp rise in operating costs weighed on both China Telecom and China Mobile.

China Telecom's network and support costs grew 14% while total opex rose 12.4%, overtaking its 11.9% rise in revenue. EBITDA margin was 29.4%, down 1.6 points from last year.

For China Mobile, both network costs and total opex were up 16%, while EBITDA margin contracted to 33.5% from 36.3%. The company attributed the higher expenses to "the large-scale operation of 5G," which meant network opex would rise "at a relatively high rate."

However, China Telecom enjoyed the benefit of the windfall from its Shanghai IPO last August, which helped it to shave finance costs by nearly two-thirds (see Chinese carriers forge ahead with monster IPO).

It said the fresh funds covered the capital needs of key projects and reduced the need to take on more debt, stripping 546 million yuan ($84 million) out of its net financing costs.

Limited mobility

In their core mobile businesses, the three operators are so far seeing a limited return on their big 5G investments, with China Telecom growing mobile service revenue by 5% and China Unicom 2.2%.


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China Mobile didn't break out its mobile segments numbers, but said ARPU was 47.5 yuan, up 0.3% year on year.

In trading on the Hong Kong exchange Friday, China Unicom was up 1.58%, China Mobile was down 0.18% and China Telecom traded 0.67% higher.

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— Robert Clark, contributing editor, special to Light Reading

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