TDMA, or TD-SCDMA, is a Chinese domestic 3G standard (Wikipedia). China was not behind the west in terms of 2.5 GSM network and applications in recently years. Actually the development of mobile phones are so successful, the total users of China mobile phones users already exceeded half a billion (source: digitimes). China Mobile (NYSE: CHL), the largest mobile operator, has more than 400 millions customers at the end of 2008.
Sunmmary: the issue of 3G license (news here), the immature domestic standard being assigned to CHL, and no cool handset. All the above combined with the slowdown of Chinese economy is creating a headwind for China Mobile near term growth.
China Telecom (NYSE:CHA, the landline operator recently acquired CDMA business from China Unicom) is ramping up the new CDMA + WiFi strategy, the sky wing (tian yi) plan (English:labbrand; Chinese: Hu Langlang Sina blog); I also saw the sking wing 189 promotion when I was in China. Service wise, CHA is giving the customers both broadband internet and mobile service in one package. The price is quite competitive.
To be fair, China Mobile (NYSE:CHL) is not standing still, it’s launching the 188 number with TDMA very soon. But I am seeing at least two problems: 1) Lack of WOW handset (e.g., iPhone) to attract Chinese consumers (Chinese: asun0104 blog); 2) The lag of TDMA compared to mature 3G standard WCDMA. More importantly, the existing GSM business will slowdown quite a bit as the Chinese economy in the coastal areas cools, due to slowdown in exports. As many migrant workers go back home (factories shut), there are less need for them to talk/text to family back home. Similar thing can be said to business communications.
According to Chinese news, China Mobile’s ultimate parent, the China State Asset Management Co. (CSAM), took 50 billion Chinese Yuan (about 7.30 billion USD) from China Mobile Group (the parent of China Mobile Limited, NYSE: CHL; HKSE:0941), and gave it to China Telecom. For CSAM, this is merely put money from left pocket to right pocket, because both China Mobile and China Telecom are majority owned by CSAM. But for CHL shareholder like me, this is merely another highway robbery, orchestrated in the name of “balance of power in China telecom industry”.
Players: foreign investment bankers, Chinese goverment
The motivation of Foreign investment bankers: pump and dump, make money from the warrants (options) in Hongkong market.
Goverment usually does not know economy or business, just look at Bush admin you will know. In China goverment plays two roles in telecom revamp: as regulator and as majority owner. This makes the matter more complicated, and it seems to me goverment revamp effort is half-baked, also widely expected. It did not give big surprise to the market and the consumers.
Effectiveness of Chinese goverment policy in the past: telecom revamp in the past; regulatory effort on real estate (so far so failed). Of course we can not read the history book and do the investing. Otherwise all the greater investors will be history major.
Note: I wrote the above a while ago right after China offically started telecom re-org (May 23). I did write about the telecom re-org shortly after May 23, here are some.
A subdued Olympics rally?
The Olympics is coming. But we are not seeing much sign of an Olympics stock market rally, both in Shanghai, or in New York. The Shanghai composite index is barely above 52 week low, at around 2800 to 2900 range. Two of the Beijing 2008 Sponsors, China Mobile (NYSE: CHL) and Sohu (Nasdaq: SOHU), were not strong performers in the US market either. For instance, Sohu reported a strong 2Q 08 (transcript seekingalpha), but its stock is down today. I guess it’s just selling on the news, 11 days before the game?
(Theme song of Beijing 2008 Olympics)
I planned to write more about China telecom re-org (revamp, reform) after the recent announcement. Now the CFA test is over, I have more time to think about this.
A few days ago I read this interesting Chinese article which describes some foreign investment banks actions after the re-org news (Appendix). Let me try to explain in simple words. The China telecom re-org is widely anticipated to happen this year, the conventional wisdom is the decesion will be made after August Beijing Olympics. Those investment banks created many warrants (European options) in HKSE with expiration date in August, thinking the annoucement of re-org will make the China Mobile, China Unicom, China Telecom and China NetCom stocks trades in Hongkong have a big swing. They can make money from that.
(Update May 26 11:35PM) Just found the Google finance has the wrong EPS and PE ((EPS 2.62, PE 29.92) for CHL. Yahoo finance has the right number for CHL: ttm EPS $3.08, PE 25.44 as of Friday May 23.
GS downgrade (Bloomberg): the ladies at Goldman Sachs cut the rating of 0941 (China Mobile H share) from neutral to sell, and cut price target from 135 HKD to 105 HKD. I don’t trust Goldman rating blindly (no disrespect to people at GS), this downgrade combined with the share drop both in NYSE and Hongkong, signals the big boys are leaving the table. I don’t want to stick my head out at this time, so I am going to sell 2/3 of my CHL shares tomorrow morning (Tuesday May 27).
More background of the re-org, 3G license
The re-org of China telecom/wireless industry started officially, with the China Mobile Group acqusision of China Railway Telecom (Teitong), a small fixed line operator. The news drove down the stock price of China Mobile (0941.HK, NYSE:CHL) sharply lower today. Many pundits, speculators and short term investors are worrying the golden (monopoly) days of China Mobile will be over soon.
Not quite. I think about this question hard: will China Mobile lose its competetive edge in the Chinese wireless arena, with the widely expected next steps of re-org? In the re-org China Unicom will sell CDMA networks to China Telecom, and combines with China Netcom, the smaller fixed line operator with a footprint in North China; China Telecom will enter into wireless business with the Unicom CDMA acqusition.
(China Mobile restoring wireless service in Sichuan earthquake region, more pics here)
In last two days China Mobile (NYSE:CHL) and Syngenta (NYSE:SYT) released its Q1 results (Bloomberg: CHL result, SYT result). Both are doing very well lately. Today CHL got an upgrade from Zacks. But let’s not got too excited on the stocks, as a general rule. Also keep in mind sometimes we could use the analyst upgrade or downgrade as an opposite indicator (market sentiment).
Remember a company’s fundamental does not change before and after an analyst wrote a report.
China Mobile’s strength or new growth mainly comes from the rural areas, and data/internet plan in urban areas. While I apploud its management’s forward looking strategy, I am not sure how long this momentum can sustain. Note CHL trades at a much higher price compared to other mobile operators, and it is the No. 1 carrier in the world according to market cap. Here is another interesting Chinese article about China Mobile (from Caijing).
Two important news about China wireless arena yesterday.
1) China Mobile finally started the long awaited trial of TD-SCDMA 3G network (read Chinese news story 1 , and 2 from XinhuaNet). Some features of 3G include the video conference/phone, TV program, etc.
2) The new (lower) roaming fees takes effect.
I think 2) may have slightly negative effect on CHL’s earning, while 1) is insignificant and we will not know the success of 3G/TD until 2009/10.
(Picture from XinhuaNet: people are lining up for 3G phones)