China’s three mobile operators, with 1.4 billion mobile users, are in rude health, reporting strong 2017 profits, generally brisk growth in mobile service revenue and rapid migration to LTE networks.
Their collective profits reached CNY134.4 billion ($21.4 billion), up from CNY127.6 billion in 2016, on mobile service revenue of CNY828 billion in 2017 (see chart below, click to enlarge).
They added 245 million 4G subscribers in 2017, ending the year with just over 1 billion total LTE subs (or 40 per cent of the world’s total).
China Unicom’s 4G penetration jumped to 62 per cent from 40 per cent at end-2016, while both China Telecom and China Mobile’s LTE penetration hit 73 per cent (up 16 percentage points and 10 percentage points year-on-year respectively).
The one worrying trend is double-digit drops in 4G ARPU for all three. China Unicom suffered the largest decline (17 per cent year-on-year).
But given pressure from the government to cut tariffs, the decline comes as no surprise and mobile operators are counting on rising mobile turnover to offset the price declines. All three stopped charging domestic long distance and roaming fees by 1 October 2017.
The downwards pressure will only intensify this year as the three state-owned companies committed to reducing mobile data tariffs by at least 30 per cent in response to a new government policy on network speed upgrades and tariff reduction.
China Unicom plans to increase capex this year by 19 per cent to as much as CNY50 billion after cutting back on network investment sharply in 2017. It installed 110,000 4G base stations in 2017 to take its total to 850,000 and said it aims to add a similar number during 2018.
At China Telecom, 2017 capex was 8.4 per cent lower at CNY88.7 billion and the figure is forecast to drop to CNY75 billion in 2018. It added 280,000 4G base stations in 2017, bringing its total to 1.17 million, and aims to install another 200,000 this year.
China Mobile will also continue to reduce capex in 2018, with the budget forecast to decline 6.4 per cent to CNY166 billion: in 2017 the figure was down 5.2 per cent year-on-year to CNY177.5 billion. The operator said its 1.87 million 4G base stations cover 99 per cent of the population.
China Telecom leases 70 per cent of its towers (around 660,000 sites) from China Tower. Usage fees in 2017 jumped 42 per cent to CNY3.7 billion, which was the major factor behind a 10.4 per cent increase in network operations and support expenses.
Usage fees at China Unicom rose 11 per cent to CNY16.5 billion, while China Mobile’s increased 31 per cent to CNY36.9 billion. The market leader leased 39 per cent of its towers (up slightly from 2016) and, based on a new pricing scheme with China Tower, estimated the charges will rise to CNY40 billion this year.
The operators in February renegotiated the terms of their tower rental agreements with China Tower to limit their rising leasing costs as they lease more sites.
China Telecom aims to add another 60 million 4G subs in 2018, raising its LTE penetration rate to about 97 per cent (assuming zero growth in overall subscriber numbers). Its rivals didn’t release subscriber projections for 2018, but China Unicom said it added 5.7 million 4G subs in January and February, with mobile service revenue growing 11.6 per cent year-on-year.
Even as the country’s migration to 4G nears the finish line, the operators are bullish about their future growth prospects as they invest heavily in IoT and enterprise services and, of course, press ahead with plans to launch 5G in 2020.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.