Far from flagging as competition mounts, China Mobile's 4G business appears to be gathering momentum.
Subscriber data for August published earlier this week indicates that China's biggest mobile operator welcomed another 20.5 million 4G customers into the fold that month, having added about 19.2 million in July and a similar number in June.
While the operator's overall customer base is also growing -- although obviously at a much slower pace -- China Mobile Ltd. (NYSE: CHL) appears to be doing an exceptional job of persuading its 2G and 3G customers to upgrade. Incredible as it might seem, about 28% of the operator's 820 million subscribers are now using 4G services.
This performance is all the more remarkable considering that both China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA) have been making a more determined 4G push since picking up licenses to use the FDD variant of 4G technology earlier this year.
That particular flavor of 4G uses one spectrum channel for uplink communications and another for the downlink, while the TDD system preferred by China Mobile runs everything over a single "unpaired" slot. China Mobile had a major head start with TDD, but FDD is more widespread outside China and would seem to have the bigger ecosystem.
Neither of China Mobile's smaller rivals has published details of its own recent customer growth, but their performance during the first six months of the year could hardly be described as stellar. (See China Unicom Loses Out to Rivals and China Telecom Hit by Taxes as 4G Subs Soar.)
China Telecom captured only 22 million 4G subscribers over that period, next to the 99.6 million 4G customers added by China Mobile. China Unicom fared even worse: Although it does not break out details of 4G customer numbers, the number-two mobile player managed growth of just 17 million mobile broadband subscribers -- meaning users of 3G and 4G services -- in the 12 months to June.
China Mobile's performance is a ringing endorsement of TDD LTE, which appears to have avoided the technical problems that plagued TD-SCDMA, the homegrown 3G standard the operator backed. As it has ramped up spending on the 4G network rollout, customers appear to have flocked to the new offerings.
But the 4G push is not (yet) translating into bigger profits. Indeed, a mixture of taxes and equipment costs triggered a 0.8% year-on-year dip in net profit in the first half of the year, with competition and regulation forcing down service prices. The bottom-line performance marked something of a contrast with that of China Unicom, which managed to boost profits by taking an axe to expenses. (See China Mobile Profit Dips on 4G Costs, Tax.)
In the meantime, the gap between China Mobile and its smaller competitors is growing. In June last year, the market leader's business was bigger than those of China Unicom and China Telecom combined by a total of 314.76 million mobile customers. The difference had grown to 336.36 million in June this year.
There is now speculation that China Unicom and China Telecom are being goaded into an exchange of assets, or even a full-blown merger, by Chinese authorities. (See All Change in China? .)
A tie-up would obviously leave the country with just two service providers. In most cases, that would have dramatic implications for consumers and meet fierce resistance from regulatory officials. But circumstances are quite different in China, where the government appears to view all three existing players as tools that can help it to meet its goals for telecom infrastructure development.
Such a merger, then, could produce a stronger rival to China Mobile without necessarily triggering a rise in prices for Chinese consumers.
China Mobile has been sounding a wary tone when discussing its growth prospects, noting that competition is "intensifying" following the award of FDD licenses. With about 1.7 times as many customers as China Unicom and China Telecom together, the operator still towers over its competitors, but change may slowly be coming to the world's biggest 4G market.
— Iain Morris, , News Editor, Light Reading