In China, Multiple Mobile-Phone Winners by Jon Ogden
Highlighted companies: China Mobile Limited (CHL), China Unicom Ltd. (CHU), China Telecom Corp. Ltd. (CHA), China Netcom Group Corp. (CN)
Summary: With 400 million subscribers China's mobile-telecom market is the biggest in the world. Yet it houses just two players: China Mobile Limited (CHL) and China Unicom Ltd. (CHU); both are listed in Hong Kong and have American depositary receipts trading in New York. China Mobile is the dominant provider, yet remains a "growth company," piling up profits, cash and new subscribers at a rapid rate. In September, for example, CHL added 4.5m million subscribers (78.4%), taking its client base to 287 million. CHU has suffered since being saddled by the Chinese government with the task of running two separate networks, one based on the European GSM standard, the other on the U.S. CDMA standard. The next big opportunity in China is in the countryside, where people are just beginning to be able to afford mobile phones. Estimates are that only 12% have mobile phones, compared with 60% in the cities; analysts project up to 600 million new rural subscribers in the next few years. China Mobile should win most of these customers because Unicom doesn't have the resources to build two separate networks in the countryside, and has decided to focus on cities. CHL's downside: (1) How much of its strength is already priced in? (2) Will the government license new competitors? Many say for sure one, possibly two. (3) Will CHL be forced by the government to roll out China's unproven third-generation TD-SCDMA technology? The upside of CHU: (1) Some traders are speculating that Unicom's two networks will be sold off to fixed line companies China Telecom Corp. Ltd. (CHA) and China Netcom Group Corp. (CN), and CHU shareholders could get HK$10 for their shares (currently worth HK$8.47). (2) The possibility that CHU will sell one network, allowing it to focus on the other. Barron's: "The dominant provider is still a strong long-term prospect, though its weaker rival could be worth a side bet."
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