More than four years after launching 5G services, China’s three major mobile operators have kept capex elevated, with an HSBC analyst noting absolute spending on 5G in the country is still high: operators’ total network investment is about double the capital intensity in many other markets.

Neale Anderson, head of APAC telecoms research at the bank, stated in a research note the average outlay in China as a percentage of service revenue over the last five years was 23 per cent compared with 10 per cent to 15 per cent in most other markets.   

He estimated operators’ combined capex totalled around CNY350 billion ($5 billion) in 2023, mostly unchanged from the previous year and up slightly from 2021.

Over the next two years, the researcher expects the spending percentage to remain high at around 20 per cent, with China Mobile’s annual outlay dipping slightly to around CNY180 billion, China Telecom’s steady at CNY91 billion and China Unicom’s falling back to about CNY75 billion, after a 14 per cent spike in 2023.

The bank predicts operators to continue to earmark a larger share of capex to IT services and less to 5G in 2024.

Government nudge
A Ministry of Industry and Information Technology (MIIT) push for wider 5G coverage, including connecting 200 underground rail lines by end-2025, to promote the digital transformation of key industries calls into question the assumption capex will naturally fall after a major upgrade, he suggested.

But the bank’s view is any new coverage targets imposed will be met by ongoing investments in 5G and reachable even as absolute capex for the technology falls.

China Mobile directed much of its recent 5G investment to a joint 700MHz deployment in partnership with China Broadnet.

Anderson also argues that with 3.3 million base stations deployed, representing a large proportion of the global total, the operators are in a position to manage network traffic much more effectively, as 5G infrastructure is estimated by some to be 90 per cent more energy efficient.

With the trio booking modest mobile revenue gains and flat ARPU in the first three quarters of 2023, enterprise services were the main driver of growth. 

In H1 2023, China Mobile’s digital transformation sales accounted for 29 per cent of telecoms services revenue, China Unicom’s industry internet revenue comprised 22.4 per cent of total sales and China Telecom’s cloud sales stood at 17.6 per cent of turnover.

Land grab
Anderson said the last few years have been something of a “land grab” as companies rush to introduce digital services and streamline processes.

The growth is forecast to decline from 16 per cent to 29 per cent in 2023 to 9 per cent to 18 per cent this year. Despite a slowdown, Anderson believes the big three are well positioned to support state-run enterprises and government agencies as they move to automate their workflows.

In 2021 and 2022, China Mobile’s ICT growth was around 40 per cent and China Telecom’s nearly 30 per cent.

While there is no doubt the telecoms sector is directed to support “the greater good of the economy”, as the MIIT’s new targets demonstrate, Anderson explained with increased funding for ICT the interests of the government and minority shareholders are aligned through investment in digital infrastructure which delivers profitable growth.

He said the key risk is an increase in competition resulting in lower prices. The sector is crowded with more than ten cloud service providers compared with three in the US.

Smaller public cloud providers may benefit by merging or partnering with the operators to gain the regulatory “cover” and scale that the big three offer. Such moves would also give the incumbents access to different technology and sales staff. HSBC looks for such alliances as a potential positive catalyst in 2024.

“We think the regulatory risk is low” as operators are delivering the fast, low-cost services the government has pushed for, Anderson wrote, adding “we believe the China telcos are on the right side of the policy trend, delivering a service identified as a priority by the government”.