Bottom line: China could end 2015 with up to 450 million 4G subscribers, with telcos, 4G smartphone makers and mobile-focused Internet firms most likely to benefit from the massive migration.
China Telecom (HKEx: 728; NYSE: CHA) has just become the final of China’s big 3 telcos to announce an extremely aggressive subscriber target for its new 4G service, confirming my earlier prediction that the nation could end 2015 with as many as 450 million 4G users if everyone meets their goals. If they do reach those targets, it would represent a remarkable transformation that would see around one-third of the nation’s mobile users switching to 4G service by year end. That could provide a bonanza for not only the telcos, but also the smartphone makers and Internet service providers that would also benefit from such a mass migration.
The target may look like a tough one, but China’s telcos have shown that they can be quite successful when they set this kind of numbers-based goal. Sector leader China Mobile (HKEx: 941; NYSE: CHL) looked extremely aggressive to me when it said in the middle of last year that it was aiming to sign up 100 million 4G users by the end of 2014, as it only had about 14 million users at that time. (previous post)
But the company stepped on the 4G accelerator in September, and has been adding well over 10 million subscribers in each of the final months of the year. It added nearly 20 million 4G users in November alone, and looks almost certain to beat the 100 million target when it announces its year-end subscriber numbers later this month. It hasn’t given any targets for this year yet, but I would expect it to set the figure even higher with a goal of at least 250 million 4G users by the end of 2015.
All that said, let’s look at China Telecom, which has just announced its first firm 4G target of 100 million 4G users by the end of this year. (Chinese article) China Telecom and China Unicom (HKEx: 762; NYSE: CHU), which collectively control about a third of China’s mobile market, are expected to launch commercial 4G service by the middle of this year. China Mobile launched its 4G service at the start of last year, after receiving its license earlier because it was using a homegrown, untested technology.
China Telecom was particularly sluggish last year, with zero net subscriber growth for all of 2014 as it scaled back promotions to await its 4G license. Now that it’s finally received the license, the company has finally announced an aggressive road map for this year that includes plans to add 120 million subscribers, 100 million of which will be 4G users. We should note that the 120 million figure probably refers to sales of mobile devices, since China’s mobile market is now nearly saturated and most of the 120 million additions will be either customers of other carriers or China Telecom users who upgrade to 4G.
Unicom gave a similarly aggressive prediction late last year, when it said aimed to sell up to 100 million 4G devices this year. (previous post) Thus if we do a little math, the totals would add up to as many as 450 million 4G users nationwide by the end of this year, with China Mobile controlling just over half of the market and the remainder evenly split between China Telecom and Unicom.
The telcos could come under a bit of pressure to meet their targets, as all have been ordered by the regulator to rein in their promotional spending to improve profitability. But I expect that all 3 will use accounting tricks and sharply scale back their spending on 2G and 3G promotion, and should ultimately meet their targets. That should be good news for both the telcos and also smartphone makers with strong 4G offerings, with Apple (Nasdaq: AAPL), Xiaomi, Samsung (Seoul: 005930) and Huawei as 4 of the biggest probable beneficiaries.