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-China Mobile Ltd. (NYSE:CHL, SEHK:0941) is China's dominant mobile service provider, with 60% national market share. It is the world's largest telecom (telecommunications company) by subscriber count, serving more than 300 million people in 2006. Its size gives it an efficiency and resource advantage over its competitors, but brings a burden as well. As the shining star of the Chinese telecom industry, China Mobile is expected to be a main financial supporter of any home-grown telecom technologies--a literally draining honor. +{{hide_logo|path=[[Image: Chinamobile logo.png|left|150px]]}}
 +'''China Mobile Ltd.''' (NYSE: CHL, SEHK: 0941) is China's dominant mobile service provider, with 60% national market share. It is the world's largest telecommunications company by subscriber count, with 584 million subscribers as of December 2010.<ref name=CHL-2010-subscriber-stats>[http://www.chinamobileltd.com/ir.php?menu=11&year=2010&month=12 China Mobile IR site - Operational Statistics]</ref> Its size gives it an efficiency and resource advantage over its competitors, but brings a burden as well. As the shining star of the [[Mobile Phone Usage|Chinese telecom industry]], China Mobile is expected to be a main financial supporter of any home-grown telecom technologies.
-China Mobile is currently focusing its domestic expansion and development resources on rural market capture. Rural markets are much more sparsely penetrated than urban ones, and China Mobile's extensive existing network gives it a significant boost in the race to grab as many of the rural market mobile users as possible. China Mobile's future success will depend in large part on its rural expansion.+China Mobile is currently focusing its domestic expansion and development resources on [[Rural Uprisings|rural market]] capture. Rural markets are much more sparsely penetrated than urban ones, and China Mobile's extensive existing network gives it a significant boost in the race to grab as many of the rural market mobile users as possible. China Mobile's future success will depend in large part on its rural expansion.
-The Chinese government plays a large role in regulating the telecom industry, and China Mobile is very much subject to any disturbances that may come from that direction. With the 2008 Olympics looming, China is anxious to release its new third-generation homegrown mobile technology. The ensuing distribution of licenses will have a huge impact on China Mobile's course for the next few years.+The Chinese government plays a large role in regulating the telecom industry, and China Mobile is very much subject to any disturbances that may come from that direction. In May 2008, China Mobile lost $26B in market value when the Chinese government said it would start to merge smaller rivals to increase competition.<ref>[http://www.bloomberg.com/apps/news?pid=20601080&sid=acAZrwdhogdI&refer=asia China Mobile Shares Fall, Losing $26B in Value]</ref> In an effort to build its [[3G]] network, China Mobile signed a $1 billion deal with [[Alcatel (ALU)|Alcatel]] to provide the infrastructure for the network. The ensuing distribution of licenses will have a huge impact on China Mobile's course for the next few years.
 +==Company Overview==
 +China Mobile provides a range of mobile telecommunications services in all 31 provinces, autonomous regions and directly administered municipalities in Mainland China, as well as in the Hong Kong Special Administrative Region of the People’s Republic of China.<ref name=reuters/> As of December 31, 2010, the company reported about 584 million subscribers.<ref name=CHL-2010-subscriber-stats /> China Mobile Limited offers mobile telecommunications services principally using the global system for mobile communications (GSM) standard.<ref name=reuters/> Beginning from January 7, 2009, it also offers mobile telecommunications services using the time division-synchronous code division multiple access (TD-SCDMA) standard. The Company operates its third-generation (3G) business based on a core mobile telecommunications network that is shared by both its second generation (2G) and 3G businesses and TD-SCDMA wireless network capacity leased from CMCC.<ref name=reuters/>
-==History, Company Profile, and Products==+The Company provides roaming services to its customers, which allow them to access mobile telecommunications services while they are physically outside of their registered service area or in the coverage areas of other mobile telecommunications networks in other countries and regions, with which the Company has roaming arrangements. As of December 31, 2009, its GSM global roaming services covered 237 countries and regions, while its general packet radio service (GPRS) global roaming services coverage was extended to 182 countries and regions.<ref name=reuters/>
-In 2000, China Mobile split off from then-monopoly China Telecom (NYSE:CHA), and has since leaped to the forefront of China's telecom industry. Known in China for its high quality of service and extensive network, it is the mobile operator of choice for most of China's nearly 400+ million mobile phone users. +
 +China Mobile's vast size gives it an important economic scale advantage in telecom, an industry which rewards carriers for being large (i.e., many subscribers and an extensive network). The bigger a telecom company, the more free capital it has to spend on growth areas, and thus the better its network coverage, research, distribution, and marketing. This higher-quality service and better public image attracts more subscribers, which leads to yet more growth. In addition, incremental costs (including marketing, advertising, and distribution costs) tend to plateau after a certain point of expenditure: so when a large telecom company grows, the proportion of income spent on incremental costs declines, too.
-China Mobile's vast size gives it an important [[economy of scale]] advantage in telecom, an industry which rewards carriers for being large (many subscribers; an extensive network). The bigger a telecom company, the more free capital it has to spend on growth areas, and thus the better its network coverage, research, distribution, and marketing. This higher-quality service and better public image attracts more subscribers, which leads to yet more growth. In addition, incremental costs (including marketing, advertising, and distribution costs) tend to plateau after a certain point of expenditure: so when a large telecom company grows, the proportion of income spent on incremental costs declines, too.+===Business and Financial Metrics===
 +'''Second Quarter 2010 Results'''<ref>[http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704448304575195511423724240.html Wall Street Journal: "China Mobile Profit Rises 1.1%" April 20, 2010]</ref>
-As a wireless carrier, China Mobile sells services instead of products. These phone services can be divided into three main categories:+China Mobile reported first-quarter net profit increased to 25.48 billion yuan ($3.73 billion) from 25.2 billion yuan a year earlier. Revenue rose 7.7% to 109.09 billion yuan from 101.27 billion yuan. The 1.1% gain in earnings was slower than the company's 5.2% rise a year earlier.
-* '''Standard voice services''' let users make and receive calls, including local, long distance, and roaming calls, with domestic and international options.+China Mobile's average revenue per user slipped to 70 yuan in the first quarter from 73 yuan a year earlier because of a drop in mobile tariffs. New subscribers were mainly low-end users. China Mobile said Tuesday that it added six million subscribers in March, up from 5.5 million in February. The March gain included 3.4 million 3G subscribers.
-* '''Value-added services''' include voice mail, caller ID, caller restrictions, call waiting/holding/forwarding, and conference calls. These services are usually added to a calling plan individually at extra charge, or bundled together in certain high-demand groups.+
-* '''Data services''' also tend to be individual options that are added on to a basic calling plan. These include SMS (Short message services, or text messages), MMS (multimedia messaging services), WAP (wireless application protocol, which allows internet access from the phone), Color Ring (replaces the standard dialing/connecting ring that a caller hears with a song or voice recording), internet telephony, and Java application platforms.+
 +===Business Segments===
-Different combination packages of these services distinguish China Mobile's three primary brands from each other. Each brand is geared towards a different audience. ''GoTone'' targets the middle-to-high end market with wide and reliable network coverage, a strong selection of value-added and data services, and a high-quality support team. ''Shenzhouxing'' targets the mass market with lower prices and cheaper phone plans. Finally, ''M-Zone'' uses its poppy image and emphasis on multimedia selection with "cool" features to rope in the youth/student group.+====Voice Business<ref name=reuters>[http://www.reuters.com/finance/stocks/companyProfile?symbol=CHL Reuters: China Mobile Company Profile]</ref>====
-==Business Drivers==+China Mobile’s voice business focuses on enabling its customers to make and receive calls with a mobile phone at any point within the coverage area of the Company’s mobile telecommunications networks. The services include local calls, domestic long-distance calls, international long-distance calls, domestic roaming and international roaming.
 +====Value-added Business<ref name=reuters/>====
-===Rural Market Expansion===+China Mobile’s value-added business includes voice value-added services, short message services (SMS), and non-SMS data business. Its voice value-added services mainly include caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls and others services. The Company’s SMS mainly includes customer-to-customer messages, Monternet-based short messages and others. Its non-SMS data business mainly includes Handset Internet Access, Color Ring, Wireless Music, Mobile Paper, multimedia messaging service (MMS), 139 Mailbox, Fetion, 12580 Integrated Information Service Line, Mobile Market, Mobile Reading, Mobile Video, Mobile Wallet, Mobile Gaming, Mobile Map, 139 Community and Internet Data Center (IDC). As of December 31, 2009, the number of the Company’s value-added business users reached 463.4 million. It has also expanded its mobile to mobile (M2M) and mobile e-commerce businesses in different areas involving its corporate customers. As of December 31, 2009, the total number of corporate accounts reached 2.8 million.
-China's rural regions remain largely untouched by cellular companies: total market penetration is just 12% (compared to 32% overall nationally). In addition, the Chinese government's recent focus on addressing the [[urban-rural divide]] by increasing rural income and development means that the rural population may experience an increase in demand for cellular services. China Mobile's already extensive physical network of cellular signal centers means that it is in prime position to take advantage of this developing rural market. +
 +SMS refers to services that employ the existing resources of GSM networks and the corresponding functions of mobile telecommunications terminals to deliver and receive text messages, including customer-to-customer messages, Monternet-based short messages and others. SMS offers multi-functionality to the Company’s customers. Short message usage volume reached 681,225 million messages during the year ended December 31, 2009. Handset Internet Access is a service provided by the Company to its customers enabling wireless access to the Internet (including both wireless application protocol (WAP), and World Wide Web (WWW) Websites). Color Ring refers to the service where customers can customize the answer ring tone from a selection of songs, melodies, sound effects or voice recordings to replace ring connecting tone that the caller would hear. It also offers wireless music products based on Color Ring, IVR for Wireless Music and Ringtone Download. The Company recorded 82 million times of music downloads in 2009.
-The table below provides a comparison of rural ownership of some common, reasonably expensive household appliances. Mobile phones are clearly gaining in importance, and may soon overtake fixed-line phones as the primary means of communication.+Mobile Paper is a business developed by China Mobile Limited in co-operation with mainstream media in Mainland China and elsewhere, which provides customers with updated information services (including contents, such as news, sports, entertainment, cultural activities and lifestyle) through MMS, Handset Internet Access and other types of service. The number of paying customers of Mobile Paper reached 49.12 million as of December 31, 2009. MMS is a technology that allows users to exchange multi-media communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. 139 Mailbox provides customers with typical Internet-based mailbox functions and enables them to send and receive, as well as manage their e-mails using SMS, MMS and Handset Internet Access. The number of active customers of 139 Mailbox reached 23.75 million as of December 31, 2009.
 +Fetion enables mobile customers to communicate through various means, including SMS, for chatting, dating or interactive entertainment. The number of customers of Fetion reached 62.56 million as of December 31, 2009. The Company has launched Mobile Market, providing customers with an open platform that enables downloads of mobile software and applications. It has also launched its OMS platform, an intelligent mobile terminal software platform. Jointly working with handset vendors, the Company has launched OPhone handsets and provided an end-to-end mobile Internet user experience.
-{| class="wikitable" +==Trends and Forces==
-|- bgcolor="#ececec" +===Rural Market Expansion===
-| Width="200"| || colspan="3" align = "center" | '''% Ownership, Rural Families''' +China's [[Rural Uprisings|rural regions]] remain largely untouched by cellular companies: total market penetration is just 12% (compared to 32% overall nationally). In addition, the Chinese government's recent focus on addressing the urban-rural divide by increasing rural income and development means that the rural population may experience an increase in demand for cellular services. China Mobile's already extensive physical network of cellular signal centers means that it is in prime position to take advantage of this developing rural market.
-|- bgcolor="#ececec" +
-!Width="20" |+
-!Width="75"|'''2003''' +
-!Width="75"|'''2004''' +
-!Width="75"|'''2005''' +
-|-+
-| colspan="1"| '''Mobile Phone''' || align="center" | 23.5 || align = "center" | 34.5 || align = "center" | 50 +
-|-+
-| colspan="1"| '''Fixed-line Phone''' || align="center" | 48.7 || align = "center" | 54.2 || align = "center" | 58 +
-|-+
-| colspan="1"| '''Car''' || align="center" | 0.4 || align = "center" | 0.6 || align = "center" | 5 +
-|-+
-| colspan="1"| '''Color TV''' || align="center" | 67.8 || align = "center" | 75.1 || align = "center" | 84 +
-|-+
-| colspan="1"| '''Computer (PC)''' || align="center" | 1.3 || align = "center" | 1.8 || align = "center" | 6.8 +
-|}+
-''Source: Merrill Lynch''+
 +=====High Rural Profitability=====
 +Mobile companies' standard profitability indicators include ARPU, average revenue per user. Most rural subscribers tend to favor the most inexpensive and basic plans, depriving mobile carriers of the more profitable added-value voice and data services. Thus, rural ARPUs are usually expected to be lower than urban ARPUs, making each rural subscriber less profitable to the company on average than each urban subscriber. However, China Mobile's current rural ARPU of RMB40-50/month is significantly higher than is needed for rural break-even (RMB30/month; US$1 is apprx. 7.9RMB). Rural areas can be much more profitable than expected, for a number of reasons:
-=====High Rural Profitability=====+*Rural ARPUs are lower than urban ARPUs by about RMB30/month, but rural building and maintenance costs are also lower.
-Mobile companies' standard profitability indicators include ARPU, average revenue per user. Most rural subscribers tend to favor the most inexpensive and basic plans, depriving mobile carriers of the more profitable added-value voice and data services. Thus, rural ARPUs are usually expected to be lower than urban ARPUs, making each rural subscriber less profitable to the company on average than each urban subscriber. However, China Mobile's current rural ARPU of [[RMB]]40-50/month is significantly higher than is needed for rural break-even (RMB30/month). Rural areas can be much more profitable than expected, for a number of reasons:+
-*Rural ARPUs are lower than urban ARPUs by about RMB30/month, but rural building and maintainance costs are also lower. +
*A significant minority of rural subscribers (small-business owners, migrant seasonal workers, or students) have relatively liberal spending habits. Many small farmers are also growing dependent on value-added data services, including SMS reporting of weather conditions and crop price fluctuations. *A significant minority of rural subscribers (small-business owners, migrant seasonal workers, or students) have relatively liberal spending habits. Many small farmers are also growing dependent on value-added data services, including SMS reporting of weather conditions and crop price fluctuations.
*Cellular substitution in rural areas has been a more prevalent than expected. Many rural Chinese are replacing [[fixed-line telecommunication|fixed-line]] phones with mobile phones as China Mobile begins to undercut fixed-line prices. New models of cellular phones that mimic the look and feel of traditional fixed-line phones further encourage the cellular substitution trend. *Cellular substitution in rural areas has been a more prevalent than expected. Many rural Chinese are replacing [[fixed-line telecommunication|fixed-line]] phones with mobile phones as China Mobile begins to undercut fixed-line prices. New models of cellular phones that mimic the look and feel of traditional fixed-line phones further encourage the cellular substitution trend.
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=====The Challenge of Rural Markets===== =====The Challenge of Rural Markets=====
As rural market penetration increases, China Mobile may have difficulty maintaining its rural profitability for two main reasons: As rural market penetration increases, China Mobile may have difficulty maintaining its rural profitability for two main reasons:
 +
*The family-based nature of most current rural subscriptions make it difficult for China Mobile's rural expansion to remain so lucrative. Most subscribed rural families have only one mobile phone and thus can afford to spend a relatively large amount on it. But if the subscriber count goes up, more phones per family will mean less expenditure per phone, resulting in an ARPU drop. If China Mobile tries to get around this by signing up more families, it will have to expand into poorer segments of the population, who again won't be able to spend as much per new subscription. *The family-based nature of most current rural subscriptions make it difficult for China Mobile's rural expansion to remain so lucrative. Most subscribed rural families have only one mobile phone and thus can afford to spend a relatively large amount on it. But if the subscriber count goes up, more phones per family will mean less expenditure per phone, resulting in an ARPU drop. If China Mobile tries to get around this by signing up more families, it will have to expand into poorer segments of the population, who again won't be able to spend as much per new subscription.
*The Chinese government has been experimenting recently with [[Chinese New Socialism|"New Socialism"]] in an effort to revitalize certain ailing rural communities. Uncertainty about the effect of these experiments on rural spending capacity and their possible widespread adoption could raise problems for China Mobile's rural expansion plan. *The Chinese government has been experimenting recently with [[Chinese New Socialism|"New Socialism"]] in an effort to revitalize certain ailing rural communities. Uncertainty about the effect of these experiments on rural spending capacity and their possible widespread adoption could raise problems for China Mobile's rural expansion plan.
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The impending introduction of [[3G]] or third-generation mobile technology could potentially damage China Mobile's financial position. 3G's advent means that the Chinese government will have to distribute new operating licenses for competing "standards" (mobile information transmission protocols): internationally-accepted WCDMA, and home-grown TD-SCDMA. The government strongly favors TD-SCDMA for political and nationalist reasons--the coming 2008 Olympics are a particularly big deadline for the standard's launch--but a swich to TD-SCDMA will be expensive, since it requires extensive new infrastructure and testing that the already-established WCDMA doesn't. The impending introduction of [[3G]] or third-generation mobile technology could potentially damage China Mobile's financial position. 3G's advent means that the Chinese government will have to distribute new operating licenses for competing "standards" (mobile information transmission protocols): internationally-accepted WCDMA, and home-grown TD-SCDMA. The government strongly favors TD-SCDMA for political and nationalist reasons--the coming 2008 Olympics are a particularly big deadline for the standard's launch--but a swich to TD-SCDMA will be expensive, since it requires extensive new infrastructure and testing that the already-established WCDMA doesn't.
-Although disputed half a year ago, today it is generally understood that China Mobile's parent company will be required to foot the bill for TD-SCDMA as a way of fulfilling its social responsibility as China's leading mobile carrier. If so, China Mobile may only be licensed to operate TD-SCDMA, a blow to its profitability. On the other hand, if the Chinese government throws its full weight behind TD-SCDMA, the home-grown protocol may dominate the Chinese market and make WCDMA irrelevent.+Although disputed half a year ago, today it is generally understood that China Mobile's parent company will be required to "lead" TD-SCDMA's network development with support from [[China Netcom Group Corporation (Hong Kong) (CN)|China Netcom (CN)]] and [[China Telecom (CHA)]]. It will take the lion's share of a RMB27 billion (apprx. US$3.4 bn) bill as a way of "fulfilling its social responsibility" as China's leading mobile carrier. China Mobile may only be licensed to operate TD-SCDMA, a blow to its profitability. On the other hand, if the Chinese government throws its full weight behind TD-SCDMA, the home-grown protocol may dominate the Chinese market and make WCDMA irrelevent.
=====Enforced Restructuring===== =====Enforced Restructuring=====
China Mobile's near-monopoly on the Chinese wireless market may lead government officials either to reorganize and split up China Mobile, or to demand the implementation of policies that would help smaller telecom companies compete. For instance, China Mobile might be forced to introduce one-way number mobility (this lets people leaving the service keep their old numbers, while people switching to China Mobile for the first time still deal with the hassle of getting new numbers), or to allow the use of its extensive cellular network by other companies for roaming. China Mobile's near-monopoly on the Chinese wireless market may lead government officials either to reorganize and split up China Mobile, or to demand the implementation of policies that would help smaller telecom companies compete. For instance, China Mobile might be forced to introduce one-way number mobility (this lets people leaving the service keep their old numbers, while people switching to China Mobile for the first time still deal with the hassle of getting new numbers), or to allow the use of its extensive cellular network by other companies for roaming.
- 
-=====Pro-Consumer Legislation===== 
-With the advent of the 2008 Olympics near at hand, the Chinese government is eager to promote "harmony and goodwill" throughout the country. As part of this effort, a slew of pro-consumer legislation is in the works. If passed, the legislation would probably call for changes that either benefit consumers at the expense of companies' competitive edges (e.g. number mobility) or that eliminate misleading but lucrative practices. The government may also demand expensive investigations of embezzlement and corruption in China Mobile, which would damage its public image no matter what the investigation's results are. 
===Overseas Investing=== ===Overseas Investing===
-A good overseas acquisition or partial acquisition results in an important additional source of capital for China Mobile, allowing the company to spend yet more on either further investments or on network maintainance. Interests overseas may also act as buffers against fluctuations of the Chinese market, making China Mobile less susceptible to sudden or unforeseen negative economic trends. However, a bad overseas investment could be a huge drain of resources for China Mobile, and could also expose it to negative publicity.+A good [[China’s Investment in Developing Countries|overseas acquisition or partial acquisition]] results in an important additional source of capital for China Mobile, allowing the company to spend yet more on either further investments or on network maintenance. Interests overseas may also act as buffers against fluctuations of the Chinese market, making China Mobile less susceptible to sudden or unforeseen negative economic trends. However, a bad overseas investment could be a huge drain of resources for China Mobile, and could also expose it to negative publicity.
-After a long search for an appropriate venue to invest in, China Mobile recently acquired an 88.6% share in Pakistani telecom company Paktel. While many are enthusiastic about Paktel's possibilities for expansion, others point out that Paktel is the only of Pakistan's 5 telecom companies that has been losing subscribers annually. China Mobile may have to invest significantly in new equipment and marketing to bring Paktel up to speed.+After a long search for an appropriate venue to invest in, China Mobile recently acquired an 89% share in Pakistani telecom company Paktel. While many are enthusiastic about Paktel's possibilities for expansion, others point out that Paktel is the only of Pakistan's 5 telecom companies that has been losing subscribers annually. China Mobile may have to invest significantly in new equipment and marketing to bring Paktel up to speed.
-==Comparison to Competitors==+==Competition==
-Of wireless Chinese telecom companies, China Mobile leads the pack. Its only significant competitor in this sector is China Unicom (NYSE:CHU), a much smaller company which occasionally tries to undercut China Mobile's prices; however Unicom has difficulty sustaining the price advantage because of its lack of resources. Unicom is not well-positioned for rural expansion. Of the two cellular standards it operates, GSM has cheap handsets but spotty coverage in rural areas, while CDMA has better coverage but pricier handsets--a big minus in the frugal countryside. However, if China Unicom is acquired another major telecom company, it could shift the balance of resources enough to threaten China Mobile's position.+China Mobile competes with [[China Telecom (CHA)]] and China United Network Communications Group Company Limited ([[CHINA UNICOM (CHU)]]).<ref name=retuers/>
 +Of wireless Chinese telecom companies, China Mobile leads the pack. Its only significant competitor in this sector is [[CHINA UNICOM (CHU)|China Unicom (CHU)]], a much smaller company which occasionally tries to undercut China Mobile's prices; however Unicom has difficulty sustaining the price advantage because of its lack of resources. Unicom is not well-positioned for [[Urban-rural divide|rural expansion]]. Of the two cellular standards it operates, GSM has cheap handsets but spotty coverage in rural areas, while CDMA has better coverage but pricier handsets--a big minus in the frugal countryside. However, if China Unicom is acquired another major telecom company, it could shift the balance of resources enough to threaten China Mobile's position. Lastly, CHL is eagerly searching for cheap acquisitions during the economic downturn, which could better position the company to thrive once the economy goes on an upswing.
-China Mobile's biggest threat by far remains wired-line or "fixed-line" companies China Netcom (NYSE:CN) and China Telecom (NYSE:CHA). Wired-line companies also provide broadband internet services, which may give them an extra boost. Things to look out for include: +China Mobile's biggest threat by far remains wired-line or "fixed-line" companies [[China Netcom Group Corporation (Hong Kong) (CN)|China Netcom (CN)]] and [[China Telecom (CHA)]]. Wired-line companies also provide [[Internet Penetration Acceleration|broadband internet services]], which may give them an extra boost. Things to look out for include:
*Personal Handheld System: the PHS device is a limited-range mobile phone that uses land lines for service. A relatively new technology, total PHS subscription has been increasing at more than 30% a year, "stealing" a sizeable chunk of wireless customers from China Mobile and China Unicom. PHS could develop into a serious threat for China Mobile, especially in rural markets. *Personal Handheld System: the PHS device is a limited-range mobile phone that uses land lines for service. A relatively new technology, total PHS subscription has been increasing at more than 30% a year, "stealing" a sizeable chunk of wireless customers from China Mobile and China Unicom. PHS could develop into a serious threat for China Mobile, especially in rural markets.
-*Bundling: most industry experts believe that at least one of the two wired-line giants will receive a license that lets them use 3G wireless technology. If so, Netcom or Telecom would be able to bundle broadband internet, 3G wireless service, and fixed-line service in a single package at a competitive rate. China Mobile has no way to offer broadband or fixed-line service and cannot directly compete with this offering.+*Bundling: most industry experts believe that at least one of the two wired-line giants will receive a license that lets them use [[3G]] wireless technology. If so, Netcom or Telecom would be able to bundle broadband internet, 3G wireless service, and fixed-line service in a single package at a competitive rate. China Mobile has no way to offer broadband or fixed-line service and cannot directly compete with this offering.
- +
- +
-The table below compares '''size''' (millions of subscribers), '''subscription growth rates''' (millions added per month), and '''ARPU''' (Millions of RMB per month) for China Mobile and each of its three main competitors. It also breaks down these elements into service type (basic mobile, GSM vs. CDMA mobile, wired- or fixed-line, broadband). +
-{| class="wikitable" +
- +
-|- bgcolor="#ececec" +
-| Width="100"| || colspan="1" align="center" bgcolor="#ececcc" | '''Mobile #''' || colspan="1" align = "center" bgcolor="#ececcc" | '''Mobile +''' || colspan="1" align="center" bgcolor="#ececcc" | '''Mobile ARPU''' || colspan="1" align="center" | '''-''' || colspan="1" align="center" | '''-''' || colspan="1" align="center" | '''-''' || colspan="1" align="center" bgcolor="#ececcc" | '''Revenue/Month''' +
- +
-|- +
-| colspan="1"| China Mobile || width="75" align="center" | 301 || width="75" align = "center" | 55 || width="95" align = "center" | 90 || width="75" align = "center" | || width="75" align = "center" | || width="95" align = "center" | || width="110" align = "center" | 27090 +
- +
-|- bgcolor="#ececec" +
-| Width="100"| || colspan="1" align="center" bgcolor="#ececcc" | '''GSM #''' || colspan="1" align = "center" bgcolor="#ececcc" | '''GSM +''' || colspan="1" align="center" bgcolor="#ececcc" | '''GSM ARPU''' || colspan="1" align="center" | '''CDMA #''' || colspan="1" align="center" | '''CDMA +''' || colspan="1" align="center" | '''CDMA ARPU''' || colspan="1" align="center" bgcolor="#ececcc" | '''Revenue/Month''' +
- +
-|-+
-| colspan="1"| China Unicom || align="center" | 106 || align = "center" | 11 || align = "center" | 49 || align = "center" | 37 || align = "center" | 4 || align = "center"| 67 || width="110" align = "center" | 7673+
- +
-|- bgcolor="#ececec" +
-| Width="100"| || colspan="1" align="center" bgcolor="#ececcc" | '''Fixed #''' || colspan="1" align = "center" bgcolor="#ececcc" | '''Fixed +''' || colspan="1" align="center" bgcolor="#ececcc" | '''Fixed ARPU''' || colspan="1" align="center" | '''Band #''' || colspan="1" align="center" | '''Band +''' || colspan="1" align="center" | '''Band ARPU''' || colspan="1" align="center" bgcolor="#ececcc" | '''Revenue/Month''' +
- +
-|-+
-| colspan="1"| China Telecom || align="center" | 285 || align = "center" | 18 || align = "center" | 48 || align = "center" | 28 || align = "center" | 7 || align = "center"| 78 || width="110" align = "center" | 15864+
-|-a+
-| colspan="1"| China Netcom || align="center" | 141 || align = "center" | 2 || align = "center" | 46 || align = "center" | 15 || align = "center" | 4 || align = "center"| 66 || width="110" align = "center" | 7476+
- +
-|}+
-''Source: Merrill Lynch Estimates, Company Reports''+
- +
- +
-As seen above, China Mobile leads by a long stretch. However, note that broadband is a very lucrative service, and that the two wired companies are relatively close behind in total subscription numbers. China Mobile's gigantic lead is largely due to its extremely high monthly ARPU, a result of its very profitable added-value services. If rural expansion causes the ARPU to go down, China Mobile's margin will be significantly diminished.+
- +
-==Bulls/Investment Pros==+
-*China Mobile's massive size and dominance of the market give it an economy of scale advantage in the telecom industry. If no untoward events happen and there are no major shifts in public opinion, China Mobile should theoretically go on increasing in size, revenue, and quality of service--a positive cycle.+
-*Rural profitability and national emphasis on improving the quality of life in the countryside make the rural market prime property. China Mobile's already extensive rural network puts it in a very competitive position for rural market share capture and penetration.+
-*China Mobile's recent acquisition of Paktel broadens its expansion opportunities and also diversifies its revenue base--if something untoward happens in the Chinese telecom industry or economy, China Mobile will somewhat more buffered from the effects than its competitors. +
- +
-==Bears/Investment Cons==+
-*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.+
-*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. +
-*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.+
- +
-==Annotations==+{{clr}}
-03/14/2007 – 03/20/2007: Forbes reports China Mobile's investment of USD 700 million into its recent acquisition Paktel, with another 400 million yet to come. Emphasis is drawn to China Mobile's foray into foreign markets and its determined backing of the new acquisition.+
-02/08/2007 – 02/13/2007: Rumors spread that Vodafone may want to sell 3% of its stake in China Mobile. China Mobile executives deny receiving any communication from Vodafone about such a sale, but bring more bad news from the Chinese government: 3G licensing will be delayed again at least until the end of 2007.+==References==
 +<references/>
-01/16/2007 – 01/19/2007: China Mobile announces that it will soon launch a SMS-spam reporting service.+[[category:Technology]]
 +[[category:Telecommunications]]
 +[[category:Mature]]
 +[[category:China]]
 +[[category:Wireless Communications*]]

Current revision


China Mobile Ltd. (NYSE: CHL, SEHK: 0941) is China's dominant mobile service provider, with 60% national market share. It is the world's largest telecommunications company by subscriber count, with 584 million subscribers as of December 2010.[1] Its size gives it an efficiency and resource advantage over its competitors, but brings a burden as well. As the shining star of the Chinese telecom industry, China Mobile is expected to be a main financial supporter of any home-grown telecom technologies.

China Mobile is currently focusing its domestic expansion and development resources on rural market capture. Rural markets are much more sparsely penetrated than urban ones, and China Mobile's extensive existing network gives it a significant boost in the race to grab as many of the rural market mobile users as possible. China Mobile's future success will depend in large part on its rural expansion.

The Chinese government plays a large role in regulating the telecom industry, and China Mobile is very much subject to any disturbances that may come from that direction. In May 2008, China Mobile lost $26B in market value when the Chinese government said it would start to merge smaller rivals to increase competition.[2] In an effort to build its 3G network, China Mobile signed a $1 billion deal with Alcatel to provide the infrastructure for the network. The ensuing distribution of licenses will have a huge impact on China Mobile's course for the next few years.

Company Overview

China Mobile provides a range of mobile telecommunications services in all 31 provinces, autonomous regions and directly administered municipalities in Mainland China, as well as in the Hong Kong Special Administrative Region of the People’s Republic of China.[3] As of December 31, 2010, the company reported about 584 million subscribers.[1] China Mobile Limited offers mobile telecommunications services principally using the global system for mobile communications (GSM) standard.[3] Beginning from January 7, 2009, it also offers mobile telecommunications services using the time division-synchronous code division multiple access (TD-SCDMA) standard. The Company operates its third-generation (3G) business based on a core mobile telecommunications network that is shared by both its second generation (2G) and 3G businesses and TD-SCDMA wireless network capacity leased from CMCC.[3]

The Company provides roaming services to its customers, which allow them to access mobile telecommunications services while they are physically outside of their registered service area or in the coverage areas of other mobile telecommunications networks in other countries and regions, with which the Company has roaming arrangements. As of December 31, 2009, its GSM global roaming services covered 237 countries and regions, while its general packet radio service (GPRS) global roaming services coverage was extended to 182 countries and regions.[3]

China Mobile's vast size gives it an important economic scale advantage in telecom, an industry which rewards carriers for being large (i.e., many subscribers and an extensive network). The bigger a telecom company, the more free capital it has to spend on growth areas, and thus the better its network coverage, research, distribution, and marketing. This higher-quality service and better public image attracts more subscribers, which leads to yet more growth. In addition, incremental costs (including marketing, advertising, and distribution costs) tend to plateau after a certain point of expenditure: so when a large telecom company grows, the proportion of income spent on incremental costs declines, too.

Business and Financial Metrics

Second Quarter 2010 Results[4]

China Mobile reported first-quarter net profit increased to 25.48 billion yuan ($3.73 billion) from 25.2 billion yuan a year earlier. Revenue rose 7.7% to 109.09 billion yuan from 101.27 billion yuan. The 1.1% gain in earnings was slower than the company's 5.2% rise a year earlier. China Mobile's average revenue per user slipped to 70 yuan in the first quarter from 73 yuan a year earlier because of a drop in mobile tariffs. New subscribers were mainly low-end users. China Mobile said Tuesday that it added six million subscribers in March, up from 5.5 million in February. The March gain included 3.4 million 3G subscribers.

Business Segments

Voice Business[3]

China Mobile’s voice business focuses on enabling its customers to make and receive calls with a mobile phone at any point within the coverage area of the Company’s mobile telecommunications networks. The services include local calls, domestic long-distance calls, international long-distance calls, domestic roaming and international roaming.

Value-added Business[3]

China Mobile’s value-added business includes voice value-added services, short message services (SMS), and non-SMS data business. Its voice value-added services mainly include caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls and others services. The Company’s SMS mainly includes customer-to-customer messages, Monternet-based short messages and others. Its non-SMS data business mainly includes Handset Internet Access, Color Ring, Wireless Music, Mobile Paper, multimedia messaging service (MMS), 139 Mailbox, Fetion, 12580 Integrated Information Service Line, Mobile Market, Mobile Reading, Mobile Video, Mobile Wallet, Mobile Gaming, Mobile Map, 139 Community and Internet Data Center (IDC). As of December 31, 2009, the number of the Company’s value-added business users reached 463.4 million. It has also expanded its mobile to mobile (M2M) and mobile e-commerce businesses in different areas involving its corporate customers. As of December 31, 2009, the total number of corporate accounts reached 2.8 million.

SMS refers to services that employ the existing resources of GSM networks and the corresponding functions of mobile telecommunications terminals to deliver and receive text messages, including customer-to-customer messages, Monternet-based short messages and others. SMS offers multi-functionality to the Company’s customers. Short message usage volume reached 681,225 million messages during the year ended December 31, 2009. Handset Internet Access is a service provided by the Company to its customers enabling wireless access to the Internet (including both wireless application protocol (WAP), and World Wide Web (WWW) Websites). Color Ring refers to the service where customers can customize the answer ring tone from a selection of songs, melodies, sound effects or voice recordings to replace ring connecting tone that the caller would hear. It also offers wireless music products based on Color Ring, IVR for Wireless Music and Ringtone Download. The Company recorded 82 million times of music downloads in 2009.

Mobile Paper is a business developed by China Mobile Limited in co-operation with mainstream media in Mainland China and elsewhere, which provides customers with updated information services (including contents, such as news, sports, entertainment, cultural activities and lifestyle) through MMS, Handset Internet Access and other types of service. The number of paying customers of Mobile Paper reached 49.12 million as of December 31, 2009. MMS is a technology that allows users to exchange multi-media communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. 139 Mailbox provides customers with typical Internet-based mailbox functions and enables them to send and receive, as well as manage their e-mails using SMS, MMS and Handset Internet Access. The number of active customers of 139 Mailbox reached 23.75 million as of December 31, 2009.

Fetion enables mobile customers to communicate through various means, including SMS, for chatting, dating or interactive entertainment. The number of customers of Fetion reached 62.56 million as of December 31, 2009. The Company has launched Mobile Market, providing customers with an open platform that enables downloads of mobile software and applications. It has also launched its OMS platform, an intelligent mobile terminal software platform. Jointly working with handset vendors, the Company has launched OPhone handsets and provided an end-to-end mobile Internet user experience.

Trends and Forces

Rural Market Expansion

China's rural regions remain largely untouched by cellular companies: total market penetration is just 12% (compared to 32% overall nationally). In addition, the Chinese government's recent focus on addressing the urban-rural divide by increasing rural income and development means that the rural population may experience an increase in demand for cellular services. China Mobile's already extensive physical network of cellular signal centers means that it is in prime position to take advantage of this developing rural market.

High Rural Profitability

Mobile companies' standard profitability indicators include ARPU, average revenue per user. Most rural subscribers tend to favor the most inexpensive and basic plans, depriving mobile carriers of the more profitable added-value voice and data services. Thus, rural ARPUs are usually expected to be lower than urban ARPUs, making each rural subscriber less profitable to the company on average than each urban subscriber. However, China Mobile's current rural ARPU of RMB40-50/month is significantly higher than is needed for rural break-even (RMB30/month; US$1 is apprx. 7.9RMB). Rural areas can be much more profitable than expected, for a number of reasons:

  • Rural ARPUs are lower than urban ARPUs by about RMB30/month, but rural building and maintenance costs are also lower.
  • A significant minority of rural subscribers (small-business owners, migrant seasonal workers, or students) have relatively liberal spending habits. Many small farmers are also growing dependent on value-added data services, including SMS reporting of weather conditions and crop price fluctuations.
  • Cellular substitution in rural areas has been a more prevalent than expected. Many rural Chinese are replacing fixed-line phones with mobile phones as China Mobile begins to undercut fixed-line prices. New models of cellular phones that mimic the look and feel of traditional fixed-line phones further encourage the cellular substitution trend.
The Challenge of Rural Markets

As rural market penetration increases, China Mobile may have difficulty maintaining its rural profitability for two main reasons:

  • The family-based nature of most current rural subscriptions make it difficult for China Mobile's rural expansion to remain so lucrative. Most subscribed rural families have only one mobile phone and thus can afford to spend a relatively large amount on it. But if the subscriber count goes up, more phones per family will mean less expenditure per phone, resulting in an ARPU drop. If China Mobile tries to get around this by signing up more families, it will have to expand into poorer segments of the population, who again won't be able to spend as much per new subscription.
  • The Chinese government has been experimenting recently with "New Socialism" in an effort to revitalize certain ailing rural communities. Uncertainty about the effect of these experiments on rural spending capacity and their possible widespread adoption could raise problems for China Mobile's rural expansion plan.

Governmental Regulation

China Mobile Limited's parent company is China Mobile Communications Corporation, a state-owned enterprise that holds 75% of CHL's shares. These close ties to the Chinese government means that China Mobile Ltd. can be pressured into actions not in the best interests of its minority stockholders. Governmental intervention is one of China Mobile's biggest risks.

3G Licensing and Development

The impending introduction of 3G or third-generation mobile technology could potentially damage China Mobile's financial position. 3G's advent means that the Chinese government will have to distribute new operating licenses for competing "standards" (mobile information transmission protocols): internationally-accepted WCDMA, and home-grown TD-SCDMA. The government strongly favors TD-SCDMA for political and nationalist reasons--the coming 2008 Olympics are a particularly big deadline for the standard's launch--but a swich to TD-SCDMA will be expensive, since it requires extensive new infrastructure and testing that the already-established WCDMA doesn't.

Although disputed half a year ago, today it is generally understood that China Mobile's parent company will be required to "lead" TD-SCDMA's network development with support from China Netcom (CN) and China Telecom (CHA). It will take the lion's share of a RMB27 billion (apprx. US$3.4 bn) bill as a way of "fulfilling its social responsibility" as China's leading mobile carrier. China Mobile may only be licensed to operate TD-SCDMA, a blow to its profitability. On the other hand, if the Chinese government throws its full weight behind TD-SCDMA, the home-grown protocol may dominate the Chinese market and make WCDMA irrelevent.

Enforced Restructuring

China Mobile's near-monopoly on the Chinese wireless market may lead government officials either to reorganize and split up China Mobile, or to demand the implementation of policies that would help smaller telecom companies compete. For instance, China Mobile might be forced to introduce one-way number mobility (this lets people leaving the service keep their old numbers, while people switching to China Mobile for the first time still deal with the hassle of getting new numbers), or to allow the use of its extensive cellular network by other companies for roaming.

Overseas Investing

A good overseas acquisition or partial acquisition results in an important additional source of capital for China Mobile, allowing the company to spend yet more on either further investments or on network maintenance. Interests overseas may also act as buffers against fluctuations of the Chinese market, making China Mobile less susceptible to sudden or unforeseen negative economic trends. However, a bad overseas investment could be a huge drain of resources for China Mobile, and could also expose it to negative publicity.

After a long search for an appropriate venue to invest in, China Mobile recently acquired an 89% share in Pakistani telecom company Paktel. While many are enthusiastic about Paktel's possibilities for expansion, others point out that Paktel is the only of Pakistan's 5 telecom companies that has been losing subscribers annually. China Mobile may have to invest significantly in new equipment and marketing to bring Paktel up to speed.

Competition

China Mobile competes with China Telecom (CHA) and China United Network Communications Group Company Limited (CHINA UNICOM (CHU)).[5]

Of wireless Chinese telecom companies, China Mobile leads the pack. Its only significant competitor in this sector is China Unicom (CHU), a much smaller company which occasionally tries to undercut China Mobile's prices; however Unicom has difficulty sustaining the price advantage because of its lack of resources. Unicom is not well-positioned for rural expansion. Of the two cellular standards it operates, GSM has cheap handsets but spotty coverage in rural areas, while CDMA has better coverage but pricier handsets--a big minus in the frugal countryside. However, if China Unicom is acquired another major telecom company, it could shift the balance of resources enough to threaten China Mobile's position. Lastly, CHL is eagerly searching for cheap acquisitions during the economic downturn, which could better position the company to thrive once the economy goes on an upswing.

China Mobile's biggest threat by far remains wired-line or "fixed-line" companies China Netcom (CN) and China Telecom (CHA). Wired-line companies also provide broadband internet services, which may give them an extra boost. Things to look out for include:

  • Personal Handheld System: the PHS device is a limited-range mobile phone that uses land lines for service. A relatively new technology, total PHS subscription has been increasing at more than 30% a year, "stealing" a sizeable chunk of wireless customers from China Mobile and China Unicom. PHS could develop into a serious threat for China Mobile, especially in rural markets.
  • Bundling: most industry experts believe that at least one of the two wired-line giants will receive a license that lets them use 3G wireless technology. If so, Netcom or Telecom would be able to bundle broadband internet, 3G wireless service, and fixed-line service in a single package at a competitive rate. China Mobile has no way to offer broadband or fixed-line service and cannot directly compete with this offering.



References

  1. 1.0 1.1 China Mobile IR site - Operational Statistics
  2. China Mobile Shares Fall, Losing $26B in Value
  3. 3.0 3.1 3.2 3.3 3.4 3.5 Reuters: China Mobile Company Profile
  4. Wall Street Journal: "China Mobile Profit Rises 1.1%" April 20, 2010
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