Mobile services

China Telco Shares Drop After Fourth License Award

Shares in all three of China's national telcos have fallen after the country's authorities were yesterday reported to have awarded a fourth telecom license to China Broadcasting Network Company (CBN), a major player in the cable and TV market.

Market leader China Mobile Ltd. (NYSE: CHL) had seen its share price drop by 2.2% on the Hong Kong Stock Exchange by mid-afternoon on Friday, while shares in China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA) were down by 2.7% and 1.3% respectively.

According to a report from Reuters, the license given to CBN will allow it to provide telecom and Internet services on a nationwide basis.

The move has the potential to shake up the Chinese telecom market, in which China Mobile has become an even more dominant force since launching 4G mobile services in the last few years. (See China Mobile Adds 65M 4G Customers.)

Recent financial results showed that China Mobile served a staggering 834 million mobile customers, including 377 million 4G subscribers, at the end of March.

China Unicom had 258.9 million mobile customers and 59.3 million 4G ones on the same date, while China Telecom claimed to serve 202.6 million mobile customers, 74.9 million of whom were on 4G plans.

Customer Numbers
Source: Operators.
Source: Operators.

Despite the share price movements, a Nomura analyst cited in the Reuters report does not expect CBN to have much immediate impact on the existing players.

"We do not think CBN will become a major threat to existing telecom operators in the near term, unless CBN can resolve its own financial bottlenecks and complete the process of national television and broadcasting network consolidation," Nomura analyst Leping Huang is reported to have written in a research note seen by Reuters.

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Huang is also quoted as saying he expects CBN to invest about 20 billion Chinese yuan (US$3.1 billion) in the telecom market this year.

China Mobile plans to spend as much as RMB186.2 billion ($28.6 billion) in capital expenditure this year, while China Unicom and China Mobile have earmarked RMB75 billion ($11.5 billion) and RMB97 billion ($14.9 billion) for capex respectively.

Capital Expenditure
Source: Operators, Reuters. Note: Figure for CBN is taken from Nomura analyst cited in Reuters report.
Source: Operators, Reuters. Note: Figure for CBN is taken from Nomura analyst cited in Reuters report.

The expectation a new player is planning any kind of investment will be welcomed by Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), China's two leading suppliers of network equipment and services, as well as Western rivals Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK), which also compete in the Chinese market.

Even so, spending by the incumbents will be 18% less than in 2015, according to the companies' forecasts, and a RMB20 billion ($3.1 billion) investment by CBN would make little difference, accounting for about 5.6% of the sector total.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

danielcawrey 5/7/2016 | 11:43:01 AM
Re: Share price movements and Fitch Will this really alter China Mobile's domination?

It seems like the Chinese government wants China Mobile to remain the top player in the market. They have the ability to control this, so I don't fully understand why they would grant this license to another operator. 
iainmorris 5/6/2016 | 8:46:33 AM
Share price movements and Fitch China Mobile's share price closed down 2.39%, China Unicom's 2.44% and China Telecom's 1.87%. Fitch Ratings has weighed in with its own comments on this move, saying -- much like Nomura -- that the licensing of CBN is unlikely to have much immediate impact. "It will take considerable capital and time to narrow the network quality gap between telecoms and cable TV operators," says the agency in a press release. Fitch has also pointed out that, while CBN holds 700MHz spectrum, the license it received yesterday covers only the provision of "telecoms infrastructure and domestic internet data transmission services." That means entry into the mobile sector won't happen anytime soon.
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