Tough Times in Store for China Mobile

The issue of the 3G license (news here), the immature domestic standard being assigned to CHL, and no cool handset, combined with the slowdown of the Chinese economy, is creating a headwind for China Mobile's (CHL) near term growth.

China Telecom (CHA) recently acquired the CDMA business from China Unicom and is ramping up the new CDMA + WiFi strategy, the sky wing (tian yi) plan (English:labbrand; Chinese: Hu Langlang Sina blog); I also saw the sky wing 189 promotion when I was in China. Servicewise, CHA is giving customers both broadband internet and mobile service in one package. The price is quite competitive.

To be fair, China Mobile is not standing still, it’s launching the 188 number with TDMA very soon. But I am seeing at least two problems: 1) Lack of a WOW handset (e.g., iPhone) to attract Chinese consumers (Chinese: asun0104 blog); and 2) The lag of TDMA compared to mature 3G standard WCDMA. More importantly, the existing GSM business will slow quite a bit as the Chinese economy in the coastal areas cools due to a slowdown in exports. As many migrant workers go back home and factories are shut, there is less need for them to talk/text to family back home. A similar thing can be said for business communications.

Comments

[timemachine:]

No disclosure on stock ownership. I'm to the point where if there is no disclosure, I'm not even reading the comments.

Jan 07 01:28 PM

[ArtfulDodger:]

Who cares about disclosure? Especially when authors don't tell you where they bought in?

I'd rather know the author's conclusion? Would he buy CHA or not?

A very weak article!

Jan 08 08:27 AM

[Chris B:]

I disagree ArtfulDodger, the article is short and concise, communicating a couple of ideas and news points. Many SA articles are 3 times as long with that much content.

Jan 08 10:10 AM

[Chris B:]

If CHL is becoming the low-end provider, then I would certainly rather be them during times like these than the high end providers. The migrant factory workers might not all ditch their cell phones, but they will refuse to pay a month's wages for a WOW handset like an iPhone or pay higher rates for internet access. If CHL's competitors are investing in the unaffordable high end of the market in the midst of a severe recession while CHL is keeping prices low, expect CHL to gain a larger market share while maintaining a better cash position. All these companies will have to invest in new technology in 2-3 years anyway, so maintaining market share and earnings today is most important.

Jan 08 10:19 AM

[STLPlace:]

I put up disclosure when submitting article but it did not show up. Anyway I sold my CHL shares this past week.

CHL probably is still the best China telecom/wireless play, but as I said it faces two problems: the economy and the immature 3g standard. More update on the TDMA last week: CHL decided to rent the TDMA network from its parent (China Mobile Group). This is typical, just like China Mobile Group gave 500 M Yuan to China Telecom a short while ago. In other words, I am not too worried about the Capex of CHL, as its parent will likely to foot the TDMA bill, and also CHL has done aggressive depreciation on its GSM networks. But all this did not solve the key problem for CHL: how to win the 3G war in China using TDMA?

CHA maybe good for a trade, but it also has its share of problem. Note CHA was the parent of China Mobile 10 years ago, it got a lot legacy issues, now it got the weakest network (CDMA) from China Unicom. I would wait and see how the Sky wing campaign turns out.

On Jan 08 08:27 AM ArtfulDodger wrote:

> Who cares about disclosure? Especially when authors don't tell you
> where they bought in?
>
> I'd rather know the author's conclusion? Would he buy CHA or not?

>
>
> A very weak article!

Jan 10 11:27 AM