China Mobile is growing its 4G subscriber base at a frantic pace, with the carrier crossing the 153 million mark in April. The world’s largest carrier by subscribers added about 10 million 4G subscribers in the month, compared to a dismal tally of 691,000 3G and 4G additions by rival China Unicom in the same period. China Telecom has yet to release its April data. Several reports in the media towards the end of last year indicated that China Mobile had decided to gradually phase out its 3G network in light of waning demand coupled with the roaring success of 4G. China Mobile’s latest numbers reflected this revised strategy of focusing solely on promoting its 4G network. Since the beginning of this year, the carrier has gained over 63 million 4G subscribers at the cost of losing 16.5 million 3G and 37.3 million 2G subscribers, resulting in a net gain of 9.3 million users in the first four months.
The company continues to benefit from the fact that the Chinese government only recently awarded full FDD-LTE 4G licenses to carriers, and the smaller players intend to build and expand their 4G networks using the FDD-LTE standard. The lack of FDD-LTE licenses was preventing China Unicom and China Telecom from rapidly expanding their 4G networks in the country since their existing wireless networks (WCDMA 3G) are more compatible with FDD-LTE, unlike China Mobile’s TD-SCDMA 3G network. China Mobile’s 3G network is compatible with the TD-LTE 4G standard, for which licenses were awarded by the government in December 2013. This helped China Mobile grow its 4G subscriber base exponentially from just over 1.3 million users in February 2014 to 90 million in December 2014 to over 153 million users at the end of April 2015.
We currently have a price estimate of $64 for China Mobile, implying a slight discount to the market price.
China Mobile’s total wireless subscriber base at the end of April was about 816 million, including over 382 million high speed (3G & 4G) users. The wireless major enjoys a dominant share of over 62.5% in the country’s wireless market, reporting an improvement of 15 basis points since the start of the year. It is followed by China Unicom and China Telecom with about 22.4% and 14.5%, respectively. The steady gain in high speed subscribers over the last year has helped China Mobile improve its 3G/4G mix from just 25% in 2013 to almost 47% at the end of April 2015.
Leveraging its first mover advantage in 4G, China Mobile rapidly expanded its TD-LTE network coverage across the country last year, setting up 720,000 base stations and covering a population of over one billion people. The company offered discounted plan rates and easy upgrade services to encourage customers to adopt 4G. The rapid rise of 4G customers along with discounted data rates resulted in solid increase in data traffic demand, which increased 158% in Q1 2015 over the same period last year. 4G Internet’s popularity on the carrier’s network can also be gauged from the fact that even though 4G subscribers contributed only around 11% of China Mobile’s total user base, they used 44% of the total data on the carrier’s network last year.
The rapid increase in data usage and dominance of high speed 4G in total data traffic should have helped the carrier significantly improve its ARPU (Average Revenue Per User). However, China Mobile’s monthly ARPU declined year over year in Q1 2015 to RMB 59 ($9.53). This was on account of a rapid decline in traditional messaging and voice usage by subscribers, reflecting their gradual shift towards cheaper and more popular over-the-top applications such as WeChat. In the first quarter this year, revenues from SMS /MMS and voice services fell by 16% and 13%, respectively.
