Moody's: China Mobile's Sale of IPhones is Credit Positive
Published on: 23rd Dec 2013
By: Ian Mansfield
Moody's Investors Service says that China Mobile's right to sell iPhones on the Mainland is credit positive for the Chinese mobile telecommunications carrier.
Moody's expects that such sales will help China Mobile improve its market positions in the growing areas of 3G and 4G services, while slowing the pace of decline in its average revenue per user (ARPU).
China Mobile's market share for 3G services has been smaller than its overall mobile market share of over 60%, although it maintains the largest share.
As of November 2013, its 3G market share was 45%, while its two major competitors -- China Unicom and China Telecom -- had the shares of 30% and 25%, respectively.
This situation is largely because of the intense competition in 3G services, as well as China Mobile's use of TD-SCDMA. This is a home-grown technology and was initially incompatible with major manufacturers' handsets, including Apple's iPhone.
By contrast, China Unicom and China Telecom both operated 3G on the internationally recognized standards and as such have offered iPhones since 2009 and 2012, respectively.
However, owing to the wider variety of TD-SCDMA handsets, China Mobile's 3G market share has been improving from its bottom of 37% in November 2012. The sale of iPhones will likely help the company continue to improve its share in 3G services.
Moreover, it will allow the company to quickly expand its 4G TD-LTE services, given the popularity of iPhones among high-end users.
China Mobile Communications Corporation (CMCC), China Mobile's parent, obtained permission to operate a TD-LTE network on 4 December. China Mobile plans to assist CMCC in constructing and operating the network.
China Mobile is rolling out its TD-LTE services, well ahead of its competitors. Its TD-LTE service will be available in 16 cities, including Beijing and Shanghai, by the end of this year. The company is also planning to complete the rollout of over 500,000 base stations by the end of 2014, which will cover more than 340 cities.
China Mobile had about 763 million customers as of November 2013, of which 181 million were 3G customers. The number of 3G customers has grown over 100% since May 2013 on a year-on-year basis.
Moody's expects that the total number of its 3G and TD-LTE customers will increase to approximately 350 million by end-2014.
Given the expected higher ARPU of iPhone users, their increasing proportion should help China Mobile slow the pace of decline in its ARPU.
China Mobile's blended ARPU declined about 3% to RMB66 (about USD10.89) for the first nine months to September 2013, from RMB68 (about USD11.22) in 2012.
However, Moody's expects margins in its telecommunications services business to continue to gradually decline, but from a high base, due largely to lower margins for growing levels of data services, as well as expected increases in subsidies for 3G and TD-LTE handsets, including iPhones.
Moody's expects reported EBITDA margin in its telecommunications services business to continue to decline by at least 2 percentage points annually from 45% in 2012.
Nevertheless, Moody's expects China Mobile to maintain stable EBITDA and operating cash flow, supported by continued revenue growth in the mid-single-digit range.
Its overall credit profile will remain solid, supported by its solid operating and financial profiles, as well as its excellent liquidity. Moody's expects adjusted debt/EBITDA to remain at approximately 0.3x, given its low level of debt.
China Mobile Limited is 74% owned by CMCC, which in turn is wholly owned by Chinese government.