China's current uncertain regulatory environment makes it difficult to know exactly how 3G will affect China Mobile. However, even the best possible likely case involves significant expenditure on China Mobile's part, because of its highly visible position at the head of China's telecom industry.
Chinese demand for mobile service will slow demand for CHL's products and may impede the company's growth. According to Citigroup's Michael Meng, there has been evidence of slowing mobile phone use in China since November 2008. Furthermore, the Chinese government has mandated that CHL use the TD-SCDMA mobile standard in efforts to revive competition amongst Chinese mobile service providers. The TD-SCDMA standard, however, has not been used anywhere else in the world and may inhibit the company from providing high-speed data access. Therefore, this mandate may further slow CHL's expansion in the future. Because of these two factors, Royal Bank of Scotland's Wendy Liu expects CHL's shares to remain stagnant until about 2012.
The difficulty of sustaining rural profitability could lower China Mobile's revenue growth prematurely in the next few years. Although the rural market seems largely unpenetrated, China Mobile would have to increase subscription but also hold ARPUs steady in order to sustain its current level of growth. But if subscriptions are increased by raising the number of mobile phones in a family, ARPUs will probably drop; if subscriptions are increased by enrolling poorer and poorer families, ARPUs will also probably drop.
Challenge from wired-line competitors China Telecom and China Netcom is significant. Although China Mobile seems to be gaining some ground against wired-line providers in the rural markets through cellular substitution, the highly competitive and still-young PHS devices counterweigh that gain. With a whopping growth rate of 30% per year (and perhaps still rising), PHS is a serious threat to China Mobile's rural business. Bundling of wired-line, PHS, and broadband internet services is also a serious issue for China Mobile.
