china mobile edmundo lozano ryan mueller april 19, 2010
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China Mobile
Edmundo LozanoRyan MuellerApril 19, 2010
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Company BackgroundLeading mobile services provider in
China
World’s largest mobile network
World’s largest customer base: 533 mil
Developer of the oPhone
In charge of developing TD-SCDMA
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Stock InformationTicker: CHL
Price (May 12, 2009): $48.59
Number of Shares bought: 200
Current Price: $50.30◦Shanghai Index vs CHL
52-week range: $42.64 - $59.22
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May 12, 2009Q1 Profits of $3.69 billionQ1 revenue increased 9.2%15-30% yearly annual growthHas near monopoly in ChinaCHL has 460 million subscribersOperating Margins: 35%Very healthy balance sheetDividend payout ratio: 43%
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May 12, 2009Sell when one or more of the
following risk factors occur:◦Re-evaluate at $80◦If China floats is currency◦The Chinese government does
something to CHL or forces CHL to do something that is contrary to our best interests
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Recent NewsAbout to invest $5.86 billion (in
USD) in Shanghai-listed Shanghai Pudong Development Bank
Has asked Apple for helpChina Mobile’s competitors are
selling android-based products and iPhone with WiFi capability◦WiFi access has recently been
allowed in China
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WiFi and WAPIWAPI = Wireless Authentication
and Privacy InfrastructureChinese government has not
provided full specification on its encryption algorithm
Techies speculate there are “backdoor” capabilities that allow government to monitor its users – consortiuminfo.org
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IndustryChina’s wireless penetration is
48.5%US wireless penetration is 85%Highly regulatedChinese gov’t encourages orderly
competitionNeeds licenses to expand into
new technology
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CompetitionChina Unicorn (CHU)
◦Was granted license to operate 3G technology in China on Jan. 7, 2009
◦Launched 3G network on October 1, 2009
◦GSM and WCDMA◦Capabilities include fixed-line voice,
broadband internet, IT services, business and data communications services
◦Has an alliance with Apple to sell the iPhone in China
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China Telecom (CHA)World’s largest wireline
telecommunications and broadband services provider
Mobile Voice189 million wireline subscribersMobile subscribers about 56
millionCDMA 2000
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China’s 3G NetworkCHL:
◦ In charge of developing TD-SCDMA◦Delays in network growth◦Scarcity of handset devices◦Limited vendor support
Competitors: ◦Can use mature 3G technology◦Well-established vendor network w/support◦A large variety of handsets available including
popular 3G models◦Based on WCDMA and CDMA 2000
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TD-SCDMA (CHL)China’s own proprietary 3G
networkNot backwards compatibleNot a matured networkClaims to be better suited for
densely populated areasWorld’s largest phone maker
Nokia has 1 model that offers TD-SCDMA
Not much information about it
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CDMA 2000 (CHA)January 2002 – South KoreaBackwards compatible with GSMCDMA Development Group states
that there were 308 operators in 116 countries offering CDMA 2000
Can be smoothly upgraded from existing 2G networks
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WCDMAOctober 1 – 2001 in JapanHas received extensive media
coverageSupported by international phone
vendors (like Sony, Apple, Nokia)
AT&TT – MobileBackwards compatible with GSMBased on GSM Technology
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Legal/Regulatory IssueChinese government is forcing
CHL to develop TD-SCDMACompetitors are upgrading
existing GSM networksIn order to promote competition,
the gov’t has permitted CHU to lower its tariffs by up to 10% below the gov’t standard rates
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CCID SurveyCCID is a Chinese professional
research and consulting firm◦Publicly traded
Survey was taken around October
Up to October◦CHL: 2.3 million subscribers (9
months) October Sales: 644,000
◦CHU: 1 million subscribers (1 month) October Sales: 1,000,000
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Survey ResultsFirst Choice of 3G service provider
◦44.2 % China Unicorn◦26.2 % China Mobile◦18.4 % China Telecom
Best 3G network:◦58 % WCDMA◦14.1 % CDMA 2000◦4.3 % TD-SCDMA
Over half of the people surveyed did not want a 3G phone◦Main reason: Too expensive
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Reasons for Sell Recommendation
Numbers looked great last year and numbers look great this year
Stock Price has been stagnantHighly Regulated by the Chinese Gov’tForced to develop China’s TD network
without access to current matured 3G technologies
Pays higher tariffs than competitorsHuge sitting cash flowGrowth is being constrained
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More Reasons to SellCompetitors can offer cheaper
packages and have licenses to sell WCDMA and CDMA2000 (huge vendor support)
Very limited number of handsets available
TD is in its infancy (limited information)
Underperforming versus Shanghai Index
Market Share has decreasedAverage Revenue per user
declined 7%
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4G?Long Term Evolution: AT&T has
announced its rollout of its LTE network in 2011
Compatible with WCDMA and CDMA2000 networks