China Mobile Data Subscribers Rise Competes China Unicom

It comes as a surprise to us that China Mobile’s superior 3G net add rate YTD (16.561 mn 3G net adds versus 7.028 mn from Unicom) is due to commencement of a handset replacement cycle in China Mobile’s enormous (720 mn-strong) subscriber base, rather than a significantly improved TD-SCDMA network or service performance. We guessed so because China Telecom committed to a higher monthly runrate of sales with Apple for the iPhone 5 versus the iPhone 4S (and this in turn may have secured a parallel, rather than staggered launch date). China Telecom takes the entire subsidy upfront in the quarter in which the sale is made, yet revenues continue for the remaining three to seven quarters of the contract period.

Unicom’s 3G net addition rate is now slower than that of China Mobile. Second, can Unicom use its W-CDMA/HSPA + network to generate revenues and, in particular, cash flows and profits near term. Unicom’s window of opportunity to gain share and drive data growth set to close imminently with the launch of LTE by China Mobile.

Unicom says that it will continue to rely primarily on its W-CDMA and HSPA + networks and that China Mobile’s 4G investment will not therefore trigger the sort of industry-wide capex surge endured in FY08-09 (when a third cellular player was introduced, and all three players aggressively rolled out 3G).