Bloomberg News

China Mobile Accelerates 4G Deployment to Lure Data Users

March 15, 2012

China Mobile Ltd. (941), the world’s largest phone company by users, said it accelerated deployment of its fourth-generation wireless network as it woos mobile data users with a “world-class” system.

China Mobile this year will expand its 4G trial to nine cities, from six last year, and add 20,000 base stations to the 900 it tested last year, Chairman Wang Jianzhou said at a press conference in Hong Kong today. The total number of 4G base stations will exceed 200,000 by next year, he said.

The company is counting on the move to a 4G network, based on technology known as TD-LTE, to stem a decline in market share among users who watch videos and play games on their phones. Its homegrown 3G network left it unable to offer popular handsets including Apple Inc. (AAPL)’s iPhone, which is available from domestic competitors China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp. (728)

“The TD-LTE 4G business could open a new venue for China Mobile,” Danny Chu, a Hong Kong-based analyst at Nomura Equity Research, said in an e-mail yesterday.

China Mobile and Apple are “working very hard together” and both sides hope to reach a cooperation agreement that is beneficial to both “as soon as possible,” Wang said at the press conference today.

Very Large Trial

The biggest technological obstacle to an iPhone agreement has been the carrier’s homegrown 3G technology, called TD-SCDMA, Wang said today. As the company moves closer to 4G that technology barrier is being eliminated, he said.

China Mobile shares gained 0.5 percent to close at HK$84.65 in Hong Kong trading today. They have gained 12 percent so far this year, compared with a 16 percent gain in the benchmark Hang Seng Index.

China Mobile’s 4G deployment is “a very large trial by any standard,” Tucker Grinnan, a Hong Kong-based analyst at HSBC Securities Asia Ltd., wrote in a March 12 note.

“We expect the commercial trial to gradually increase in area even without a formal license award,” Grinnan wrote.

It will be “relatively easy” for China Mobile to upgrade its 3G network to the new 4G standard, Grinnan wrote. The upgrade cost is about $10,000 per base station, or about one- third the original cost, Grinnan estimates.

Market Share

China Mobile has 250,000 3G TD-SCDMA base stations, more than 50 percent of which can be upgraded to TD-LTE, Donald Lu, a Beijing-based Goldman Sachs Group Inc. analyst, wrote in a March 9 report.

“We will create a world-class, high-speed wireless network with wide and deep coverage,” China Mobile’s Chief Executive Officer Li Yue said at the press conference today.

China Mobile had 655.4 million mobile-phone subscribers, including 53.9 million 3G users, at the end of January, the company said last month. Those exceed China Unicom’s 202.9 million mobile customers and 43.1 million 3G users in the same period.

Still, China Mobile’s share of all wireless users will drop to 64 percent this year from 69 percent in 2010, Barclays Capital Inc. analyst Anand Ramachandran estimated in a March 7 report. China Unicom’s share will rise to 22 percent from 20 percent over the same period, he estimates.

Profit Misses Estimates

China Mobile’s share of 3G users will drop to 37 percent this year from 44 percent in 2010 as China Unicom rises to 36 percent from 30 percent, Ramachandran estimates.

China Mobile today reported fourth-quarter profit that missed analyst’s estimates, as it sought to add customers who use smartphones.

Net income climbed to 33.9 billion yuan ($5.4 billion) in the three months ended Dec. 31 from 32.4 billion yuan a year earlier, according to figures derived from full-year earnings reported to the Hong Kong Stock Exchange today. The company was projected to post a profit of 34.2 billion yuan, according to the median estimate of six analysts surveyed by Bloomberg News. Sales rose 8.7 percent to 144.2 billion yuan.

Capital expenditure will rise to 131.9 billion yuan this year from 128.5 billion yuan last year, Wang said at today’s briefing. The Beijing-based company was projected to spend 130.2 billion yuan this year, according to the median estimate of six analysts surveyed by Bloomberg News.

“The war to fend off China Telecom and China Unicom has a cost,” Eric Wen, a Hong Kong-based analyst at Mirae Asset Securities, said in an e-mail today, referring to the company missing estimates.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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