China Telecom Beats Rivals but Gets Lost in Translation
Veteran trade journalists from western Europe have loved to write about China's still-growing telecom operators. It's like a trip down the memory lane of the late 1990s and early 2000s back home, only with everything supersized. Where else can you compare one operator's quarterly net additions with the population metrics of a European country?
True to form, China Telecom Corp. Ltd. (NYSE: CHA) picked up another 31.7 million mobile customers in the first six months of 2018 -- not quite enough to fill Poland but more than sufficient to repopulate Romania. 4G additions were even greater, at 35.27 million, as existing subscribers upgraded to faster connections. And service revenues were up 7%, to 177.6 billion Chinese yuan ($25.9 billion), compared with the year-earlier period.
This fueled an 8.1% increase in net profit, to about RMB13.6 billion ($2 billion), and was much better than China Mobile Communications Corp. managed. Indeed, service revenue growth across the entire market was just 4.7%, according to China Telecom. Its market share of net additions has risen impressively, from 39% of the mobile market in the first half of 2017 to 46.5% today.
It's not as if China Mobile did badly, though. In fact, it added 39 million mobile customers in the first six months, about 7 million more than China Telecom, and has 906 million in total, against China Telecom's 281.6 million. China Mobile's growth rate was less than its rival's partly because it operates from a much larger base. First-half revenues for China Mobile were about RMB391.8 billion ($57.1 billion).
Even so, while it's good to see David stand up to Goliath, overfamiliarity with this story of country-sized growth has drained it of genuine thrill. Foreign investors in companies like Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK), which sell telecom equipment in China, are wondering how long the growth will last and what comes next. And in that regard, China Mobile is an easier book to read. (See Ericsson vs. Nokia: Who's Ahead in 5G Right Now?)
The China syndrome
For both operators, as well as their China Unicom Ltd. (NYSE: CHU) rival, the 4G boom years are nearly over. Evidence of that abounds in their financial reports. Around three quarters of China Mobile's customers now use 4G services, up from just 69% in the first half of 2017. At China Telecom, the proportion has risen from 73% to 77% over the same period. While there is still some way to go before every customer is on 4G, average revenue per user is falling as services are offered to low-spending, late adopters.
Operators have also cut their own spending on 4G equipment. China Telecom spent RMB33 billion ($4.8 billion) in overall capital expenditure in the first six months, down from RMB41 billion ($6 billion) last year. China Mobile's capex fell from RMB85 billion ($12.4 billion) to RMB80 billion ($11.7 billion) over that period. In both cases, a reduction in 4G investments is largely responsible for the drop. (See Chinese Telco Capex to Fall 13% This Year.)
As in other countries, China's operators are preparing for the launch of 5G, a next-generation mobile technology that could lower costs and stimulate the development of new services. They also have an eye on opportunities in cloud computing and the Internet of Things, whereby connectivity is provided for all sorts of consumer and industrial goods, from tennis rackets to factory machines. But while China Mobile's latest earnings release offers a reasonably clear guide to its activities in some of these areas, China Telecom's report is baffling. (See 5G Still More Like Rocket Fuel Than a Mission to Mars.)
The problem is not (necessarily) that China Telecom is less ambitious, but that it does not explain its efforts in plain English. Instead, it has taken nonsensical jargon to a new level. An outstanding example, but certainly not the only instance, is the following sentence: "The company expedited the promotion of network intelligentization, service ecologicalization and operation intellectualization." These made-up terms seem deliberately meaningless, but only a psychic reader tuned into the writer's thoughts could discern meaning elsewhere. (See Telecom Jargonosaurus Part 1: Repeat Offenders.)
Any monoglot making such criticisms invites contempt. The executives shaping China Telecom's strategy do not, of course, speak English as a first language. But China also has individuals with excellent English, and its companies have access to skilled translators. There is some proof in China Mobile's own earnings update. While far from perfect, this avoids China Telecom's habitual mutilation of English, the lingua franca of the business and technology worlds, and never obscures the meaning entirely. A flawed sentence in need of clarification but containing much that is intelligible reads: "We are building out a high-quality NB-IoT network and will realize continuous coverage to areas at town level and above across the country by the end of this year." (See China Mobile Sees NB-IoT Boom as Profits Rise.)
In March, an executive from China Telecom's research department spoke at OFC 2018, an optical show in San Diego, and revealed aspects of the operator's 5G strategy that are truly groundbreaking. Chengliang Zhang's talk was important because it included a plea for additional innovation from optical specialists gathered at the event. Had it been delivered to English speakers in the same style as the recent earnings report, most attendees would have been no wiser. While less may ride on that report, a comparison with China Mobile's update makes China Telecom look unimpressive, despite its headline performance. (See China Telecom Eyes 2M+ Basestations for 5G.)
— Iain Morris, International Editor, Light Reading