- The continued increase in 5G penetration will drive revenue growth for Chinese telecom companies
- A shift in focus towards value creation for both mobile and broadband, and away from fighting for market share, will support their fundamentals
- Prudent capital expenditure should also favor them
Following China’s move to speed up the rollout of 5G services, its three domestic telecom companies, China Mobile, China Telecom and China Unicom, have steadily ramped up network infrastructure, laying the foundation to broaden revenue sources as the country embraces a new era of digital transformation.
While these carriers saw margin pressures in 2020 as a result of the hike in 5G network operation costs, until April this year, they had accumulated 400 million 5G package subscribers, surpassing a customer penetration rate of 30%. That compared with 22.6% in February.
The growing adoption of 5G networks among customers will boost these telecom companies’ average revenue per user and mobile revenue growth. Their mobile business was lackluster before the rollout of the country’s 5G network at the end of 2019, when their mobile subscriber base was saturating.
The demand for data usage also looks robust. According to China’s Ministry of Industry and Information Technology, monthly data usage posted a 22% growth year-on-year in February to 10.85GB.
As the telecom companies continue the shift to provide value-added services on broadband, including internet protocol television and internet of things, growth prospects look promising. The wider use of 5G networks should also enable them to offer customers more integrated solutions, combining wireless and fixed-line broadband.
The carriers’ prudent capital expenditure control should also support their growth prospects.
Despite last year’s spike in capex growth (14% y-y), our total capex growth forecasts for these telecom companies is in the low-single digits this year and next year. This is down to the adoption of lower-band 5G spectrums (i.e., 700MHz and 2.1GHz) for network coverage in more remote areas, as well as collaboration among them through “co-building and co-sharing” projects.
While 5G / wireless-related investments may not see a strong surge, we think telecom companies will direct more capex to digital infrastructure, including internet data centers and cloud, to support future growth in industrial internet and enterprise solutions.
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China Technology and Telecom Research