China Mobile Enlarges Terminal Subsidy

China Mobile Ltd. (SEHK: 0941 and NYSE: CHL) will provide terminal subsidies of up to more than CNY 30 billion in 2010, tripling that of this year.

Before China's telecommunications restructuring at the beginning of 2009, the country's mobile communications industry were monopolized by China Mobile and China Unicom Ltd.

Later, China Telecom Corporation Ltd. (NYSE: CHA and SEHK: 0728) joined their competition, kicking off fights over service packages and forced the two former monopolies to provide huge terminal subsidies like their foreign counterparts Vodafone, Verizon Communications Inc. (NYSE: VZ) and DoCoMo.

An insider of China Mobile Communications Corporation (CMCC) discloses the above news, saying that China Mobile will rival against its two archrivals in the 3G fields on the strength of its advantage in terms of costs.

Currently, China Mobile has a mobile service user base of 502.9 million, keeping ahead of 142 million of China Unicom (Hong Kong) Ltd. (NYSE: CHU, SEHK: 0762, and SHSE: 600050) and 43.81 million of China Telecom.

By the end of June 2009, China Mobile's 3G users have hit 959,000, China Telecom 1.3 million and China Unicom 350,000. Before August 31, China Mobile's TD-SCDMA users have reached 1.327 million. The company's goal for the 2009 full year is 3 million.

China Mobile has abundant cash reserve to support its goal. Its interim report indicates that the operating revenues of CMCC have risen 8.9% to CNY 212.913 billion by June 30.

Meanwhile, China Telecom is suffering from arrearage by newly lured users. When the company took over the CDMA network from China Unicom, the arrearage rate of the service was within 3%, which has hiked to 30% by far, because branches misacted the philosophy of headquarters.

China Telecom is brewing selling mobile phones to customers supported by the installment service of banks, as its cash flow is small because of former gratis presentation of terminals.

Although its WCDMA technology is popular around the world, China Unicom has begun adjusting its 3G orientation to high-end users. Besides lowering service packages, the company also follows China Mobile and China Telecom to provide terminal subsidies.

Telecoms advisory firm BDA reveals that China Mobile plans to put CNY 12 billion in terminal subsidy this year, half of which for TD-SCDMA handsets. However, a partner of Beijing Teler Information &Technology Co., Ltd. is not bullish on China Mobile's subsidy strategy, pointing out that most of the mobile phones formerly presented to friendly users are deserted.

In his opinion, only high-end customers use 3G services in the early stage. They pay more attention to service contents, terminal performance and mobile data transmission, not terminal prices.

(USD 1 = CNY 6.83)

Source: www.hexun.com (October 14, 2009)

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