China Unicom (Hong Kong) Limited (ADR) (CHU), China Telecom Corporation Limited (ADR) (CHA), China Mobile Ltd. (ADR) (CHL): When the Top 3 Chinese Telecom Operators Compete, You Win

Page 2 of 2

Increase in adoption of smartphones will uplift data revenue

Currently, China Mobile Ltd. (ADR) (NYSE:CHL) focuses more on low-cost smartphone sales that prevents declining margins and incur minimal subsidy expenses. However, it is shifting focus to the sale of high end smartphones like the iPhone, which will lead to increase in its ARPU level, and bring in higher data revenue. It is currently negotiating with Apple Inc. (NASDAQ:AAPL) to provide its 3G service for iPhones. This deal is important for China Mobile in regards to boosting its 3G service that will uplift mobile internet service revenue from $10.85 billion last year to $15.30 billion this year and $20 billion in 2014.

Chinese government decides the mobile tariff price, not the market forces. Frequent changes in the tariff regulation force companies to limit their flexibility in changing the tariff prices in order to respond to the growing competition. However, this will not majorly affect China Mobile Ltd. (ADR) (NYSE:CHL) since it has the highest market share, and its other segments are performing well. The company expects to generate total revenue of $100 billion this year, up from $92 billion in 2012, and $106 billion in 2014.

Conclusion

The battle between three Chinese mobile operators is likely to continue. Nevertheless, the strategies adopted by the companies will help them to maintain their market position. Due to the introduction of new government policy, China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) will continue to profit from its broadband division and increasing 3G adoption. China Telecom Corporation Limited (ADR) (NYSE:CHA)’s average monthly mobile revenue per user will increase in the future due to adoption of cheaper smartphones to enhance its 3G network service. Additionally, China Telecom will continue to benefit from its broadband service due to the FTTH network policy. China Mobile Ltd. (ADR) (NYSE:CHL) will continue to benefit from mobile internet service. Therefore, I recommend a buy for these stocks.

Madhukar Dubey has no position in any stocks mentioned. The Motley Fool owns shares of China Mobile.

The article When the Top 3 Chinese Telecom Operators Compete, You Win originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2