China’s third largest operator China Telecom will face high capex over the next year or two despite access to telecoms towers from its two larger rivals, putting pressure on its profit margin in the short term.

Fitch Ratings said tower sharing should help China Telecom gain access to China Mobile’s vast network resources, speed up its 4G launch and reduce capex over the medium term. While EBITDA margins will be under pressure in the short term due to higher tower usage fees, a likely improvement in tower operating efficiency and co-usage over the medium term should lower unit usage fees, the firm reported.

China Telecom’s capex will remain high over the next one or two years, driven by its 4G network rollout and accelerated fibre upgrade, Fitch said. Its 2016 capex budget of CNY97 billion ($14.9 billion), down from CNY109 billion last year, is still higher than its historical average annual capex and China Unicom’s 2016 capex budget of CNY75 billion.

Fitch, however, believes the strategic alliance with China Unicom on network sharing and the potential 800MHz re-farming for 4G use will likely result in more meaningful capex reductions starting in 2018.

China Telecom increased its mobile service revenue share to 15 per cent last year from 14 per cent in 2014, even though it only received its 4G licence in February 2015. It is now the second largest 4G operator in China, with 69 million 4G subscribers (14 per cent market share) in February, compared with China’s second-largest mobile operator China Unicom’s 55 million 4G subscribers.

Despite sluggish revenue growth last year, which was up 2.1 per cent to CNY331 billion ($51.2 billion), China Telecom’s net profit jumped 13.4 per cent to CNY20.1 billion. The increase was boosted by a one-off gain of CNY3.94 billion from the sale of its towers assets. EBITDA fell 0.8 per cent to CNY94.1 billion.