The Coming 4G Revolution in China
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When it comes to the global telecoms sector, the "holy grail" has to be the vast number of consumers in China. It will be important to the future of not only the Chinese telecommunications companies, but also to the future fortunes of Apple (NASDAQ: AAPL) and Nokia ADR (NYSE: NOK) who are battling both Samsung and local rivals for the hearts of Chinese consumers.
Apple recently "disappointed" some Wall Street analysts with their sales figures from China. Revenues dipped by 28 percent in the third quarter to $5.7 billion from $7.9 billion in the second quarter. That was due to the launch of Apple's iPhone 4s on the networks of China Unicom ADR (NYSE: CHU) and China Telecom ADR (NYSE: CHA), which cannot occur every quarter. But it's all relative. In the latest quarter, Apple still managed to show a 100 percent increase in the sales of iPhones in mainland China for the third quarter.
Apple's rival Nokia is also looking to cash in on China with the upcoming launch of its Windows-based Lumia phones. It had better...its share of the Chinese smartphone market has collapsed from 70 percent in 2010 to less than 30 percent currently. China has historically been a good market for Nokia. They have well-established distribution channels and a deep understanding of the country. The company has created a customized version of the Lumia and is initially selling it through China Telecom. This company is number three behind China Mobile ADR (NYSE: CHL) and China Unicom but still has an impressive 141 million subscribers.
But perhaps the most interesting investment story in China's telecom story, from a value perspective, is China Mobile. Its subscriber base is more than twice the population of the United States. This company's stock has not done much in recent years, as the company was held back by the fact that it is using a domestically developed 3G technology (TD-SCDMA) used only by China Mobile globally. This technology, for instance, does not allow any version of Apple's iPhone to access the internet at high speeds.
The result has been lost market share to both China Unicom and China Telecom. The number two player in China, China Unicom, does use the international standard for 3G service. The difference has meant that about a third of Unicom's users subscribe to more profitable 3G services offered by the company compared to only about a tenth of China Mobile's users subscribing to such services.
However, there is hope for China Mobile's long-suffering shareholders. The company is moving forward with plans for its 4G network. This home-grown standard, TD-LTE, is already backed by Softbank and others globally. And importantly, in addition to domestic phone makers such as ZTE, it is working with Apple on an iPhone that will work on this standard. So China Mobile is moving forward with a strategy to lay down a vast network (200,000) of next-generation 4G base stations across China by next year.
Tests on the TD-LTE technology, have proceeded smoothly but there is one hiccup though. The Chinese government has yet to indicate when it would begin to issue 4G licenses to the company or any of its rivals. Obviously, the sooner the better for all the Chinese telecom firms. Nevertheless, the move toward 4G is finally making China Mobile interesting again as it may get the company's growth engine going again.
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