Bottom line: China Mobile’s first-ever drop in 4G subscribers in April owes to the company’s early arrival to the space, and reflects the broader market’s maturation that is also adding similar pressures to Unicom and China Telecom.
Much ado is being made about new data from the three big telcos that includes a first-ever drop in 4G subscribers for industry heavyweight China Mobile (HKEx: 941; NYSE: CHL). This particular first seems to have been a long time coming, and really shouldn’t surprise anyone too much. The fact of the matter is that China’s mobile market has been nearing saturation for a while, and the nation’s big 3 telcos have been increasingly stealing customers from each other for the last two or three years as the number of unserved users dwindles.
The bigger question raised by this data is what the slowdown could mean over the longer term, when China Mobile and smaller peers Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) might see slow or negative growth in subscriber terms. The answer to that question is that this trio will be able to feast on their protected home market for many years to come, though they may be forced to innovate a bit more in order to get a tapped-out audience to keep paying more for services.
The headline number that is making the rounds comes in China Mobile’s latest monthly data, which show it had just over 669 million 4G subscribers at the end of April, down from nearly 672 million at the end of the previous month. (company announcement) Everyone is pointing out that this is the first such decline in the 4G era, which is currently around three years old and accounts for the bulk of China’s mobile users.
On an overall subscriber basis, China Mobile actually saw its total user base continue the usual increasing pattern for the month. Its overall users, which include people on older 3G and 2G packages, rose by about 1 million to just under 900 million, meaning 4G users accounted for about three-quarters of its total.
On a national basis, the telecoms regulator issued its own data that show 4G subscribers continued to grow on a national basis. That data showed that China added nearly 20 million 4G users in April, boosting the national total to 1.08 billion. (Chinese announcement) China’s total base of wireless users rose by a smaller 12 million to 1.48 billion, meaning there are still significant numbers of people trading up to 4G.
Apart from China Mobile’s decline in 4G users, perhaps the most interesting number in that mix is the total subscriber pool of 1.48 billion accounts. China’s current population is now about 1.3 billion, meaning the market passed the 100 percent saturation point a while ago and that growth is being fueled by people like me who have more than one mobile account.
My quick survey of a few websites seems to indicate the percentage of Chinese who actually own and use mobile service still only stands at around 60 percent, meaning a big portion of those may already have more than one account. Global rates in the most advanced countries seem to top out around 70 percent, probably because there will always be people — most notably children — who don’t have service.
All of this underscores the fact that China’s mobile market is largely tapped out at this point, at least in terms of signing up new subscribers, and it will take some new catalysts to keep China’s three telcos going. The next big catalyst, of course, will be 5G, which China is racing to trial and get up and running on a commercial basis by around 2020.
In terms of who will win or lose in all this, China Mobile could end up as the most likely to see a slowdown or more negative growth in the run-up to 5G. The company got more than a year head-start in 4G over its two rivals because it was using a slightly different, homegrown technology that required more testing. But that head-start has clearly faded by now, with the result that the other two telcos are gaining ground.
At the end of the day, I would expect all three telcos to see subscriber growth come to a halt over the next couple of years, and would advise the companies to focus more on getting their existing users to spend more time online, which is what they are doing. That shouldn’t be too hard in a country that’s prone to online flavors of the day, even if the telcos themselves are seldom innovators behind those products.