德银-中国-电信通讯行业-移动用户调查显示，CT应该占据更多的市场份额-2019.10.22-30页_1mb

China Telecom Industry Summary (2019)

Core Content

This document provides an industry update on China's telecommunications sector, focusing on the impact of Mobile Number Portability (MNP), user behavior, and forecast changes for the major operators: China Mobile (CM), China Telecom (CT), and China Unicom (CU).

Main Points

• MNP Introduction: Starting from the end of October 2019, users will be able to switch operators while keeping their phone numbers. This is expected to lead to significant churn, with CT likely to gain market share.
• User Survey Insights:
  • Switching Interest: 88% of respondents are willing to switch operators, a significant increase from 55% in a previous survey.
  • SIM Consolidation: 20% of users have multiple SIM cards, and 62% are considering consolidating them, potentially leading to a 150 million mobile line consolidation.
  • Preference for CT: CT is the preferred operator for users looking to switch, due to its superior network and service quality. CM is still the primary operator for multi-SIM users.
  • 5G Readiness: 85% of users are willing to pay more for 5G, with a 17% price increase. This suggests strong pent-up demand and potential for revenue growth.
• Market Share Shifts:
  • CT is expected to gain 4 percentage points in market share over 2018–2022, rising from 42% to 43%.
  • CM is likely to lose 10.5% of its market share, while CU is expected to gain slightly.
• Competitive Dynamics:
  • CM has a challenge in maintaining its user base and may increase promotional activity to counteract churn.
  • CT and CU can reduce marketing costs, which could improve their profit margins.
• Churn Impact:
  • MNP could cause a 5% drop in total industry subscriptions if 50% of secondary SIM users cancel.
  • The drop is expected to be concentrated in low-value accounts, with revenue likely to shift rather than disappear.
• Operator Performance:
  • CT is seen as the most loyal and preferred operator for network and service quality.
  • CM is more price-sensitive, with its Migu platform offering competitive content services.
  • CU is more price-conscious and attracts users due to lower cost.

Key Information

• Market Share: CT has increased its share by 5 percentage points since 2016.
• Churn: MNP is expected to lead to a 1% monthly churn rate, with CT gaining 4.6% in market share over three years.
• ARPU Trends:
  • CT is expected to see a decline in ARPU, but with a higher margin due to less aggressive promotions.
  • CM is more volume-sensitive and may need to reduce margins to retain users.
  • CU is expected to see an increase in ARPU due to its focus on price.
• Forecast Adjustments:
  • CT is expected to increase its mobile subscribers by 22% over two years.
  • CM is projected to lose 10.5% market share.
  • CU is expected to grow more balanced between cost control and subscriber growth.
• Valuation:
  • CT is rated as a "Buy" with a target price of HKD3.60.
  • CM is rated as a "Buy" with a target price of HKD66.35.
  • CU is rated as a "Buy" with a target price of HKD8.34.

Key Figures

• User Switching: 88% of users are interested in switching, up from 55% three years ago.
• SIM Consolidation: 62% of users with multiple SIMs are considering consolidation.
• 5G Willingness: 85% of users are willing to pay more for 5G, with a 17% price increase.
• Market Share Projections:
  • CT: 43% (up from 42%).
  • CM: -10.5%.
  • CU: +1.6% (estimated).
• Churn Impact:
  • CM: -10.5% in market share over three years.
  • CT: +4.6% in market share over three years.
  • CU: +2.3% in market share over three years.

Forecast Changes

• Mobile Net Adds:
  • CT: 35 million in 2019E, 25 million in 2020E.
  • CM: 30 million in 2019E, 20 million in 2020E.
  • CU: 15 million in 2019E, 10 million in 2020E.
• ARPU:
  • CT: -8.0% in 2019E, +0.5% in 2020E.
  • CM: -2.0% in 2019E, +2.0% in 2020E.
  • CU: -8.0% in 2019E, +3.0% in 2020E.
• Selling Expenses:
  • CT: 15.4% (stable).
  • CM: 8.2% (up from 8.7%).
  • CU: 12.0% (stable).
• Network Costs:
  • CT: 28.4% (up from 29.0%).
  • CM: 28.2% (up from 28.6%).
  • CU: 14.2% (stable).
• Target Prices:
  • CT: HKD3.60.
  • CM: HKD66.35.
  • CU: HKD8.34.

Conclusion

China Telecom is well positioned to benefit from the MNP rollout, with a strong network and service perception, and a higher likelihood of gaining market share. The survey results indicate a shift in consumer preferences, with CT being the top choice for switching. While CM may face challenges in maintaining its market share, its aggressive promotions and Migu platform could help mitigate some of the churn. The introduction of MNP is expected to lead to a 5% drop in total subscriptions, but the impact on revenue is likely to be minimal due to shifting rather than disappearing usage. CT is the top recommendation among China's telecoms, with potential for outsized earnings growth.