China Mobile plans to roll out LTE coverage in over 200 cities with over 500,000 LTE base stations in 2014, well above that of China Telecom (CT) and China Unicom (CU) with 134,000 and 40,000 base stations, respectively to become the Largest 4G LTE Network in the World.
CT is likely to be the first FDD-LTE service provider in China as it has indicated it plans to increase capex if it receives an FDD-LTE license. CU is still focusing on 42Mb HSPA+, but we think it is likely to shift to FDD-LTE if it receives the license and can bear another around of capex so soon after its investment in 3G.
China Mobile – Subscriber Migration from 3G to 4G
China Mobile has reported that its current LTE ARPU and monthly data usage are USD 29 and over 700MB, respectively. The incremental LTE ARPU and monthly data usage are USD 5 and 500MB when a user converts from 3G to LTE. Comparatively, the incremental ARPU was only USD 1.5 from 2G to 3G. Voice usage should remain relatively steady during the 3G to LTE transition though SMS could see further cannibalization with new OTT Apps in the marketplace.
Most current LTE users at China Mobile use iPhone 5S due to the limited choices of 4G smartphones and because the early adopters of 4G tend to be high-end users, in our view. In China akin to India, the most avid mobile data users are young and low-income, with a lot of free time. We believe many of these users would likely prefer low cost LTE smartphones. Incremental LTE ARPU should be similar or even higher than that of high-end LTE smartphone users due to their high usage of mobile data. The prevalence of low-cost LTE smartphones would not negatively impact on the incremental LTE ARPU
China Mobile 4G and VoLTE by Spectrum refarming of 900MHz
Channel checks with Network Gear vendors suggest that CM is working with its supply chain to provide 900MHz FDD-LTE SOC and smartphone. CM aims to re-farm its 900MHz 2G network for FDD-LTE after the commercialization of Voice over LTE (VoLTE). If this plan works, CM’s LTE network would offer coverage on the scale and quality of its current 2G network, with superior data speed, and lower marginal cost than 3G. We believe such a network would greatly enhance CM’s long-term competitive stance in 2016 and beyond.
Reliance Jio Infocomm in India is having as ambitious plans as China Mobile to match the scale of subscribers by end of 2016. It’ll be an interesting battle to watch as it unfolds and A-Vo-Id operators moves.