China Mobile:Economics 101continues…price elasticity of demand

Proprietary study. Since the introduction of the “speed upgrade and tariffreduction” initiative by the government in 2015, the market has beenconcerned about the impact of a data tariff cut on mobile operators’ revenue.

We continue our study regarding: (1) change of data tariff; (2) change of dataconsumption (per sub); (3) change of data revenue (per sub).

Generally speaking, price elasticity of demand for data remains >1. Thatshould be positive news for operators in case they are planning tofurther lower the data tariff in 2016. During 2H15, due to implementation ofthe “one-month mobile data carry-over” policy (effective on 1 Oct 2015), ChinaMobile experienced a mild drop in data revenue (per subscriber basis). In ourview, as long as the price elasticity of demand for data remains >1, then themobile operators should be willing to lower the data tariff (in exchange forhigher data revenue).

With regard to DOU (data of usage) per subscriber, the gap betweenChina Mobile and the other two narrows. We work out the 2H15DOU/subscriber for Mobile/Telecom/Unicom at 340MB/454MB/322MB (1H15:222MB/311MB/291MB). With this trend, it is fair to say 4G service hassucceeded in stimulating the data usage of China Mobile’s subscribers.

Lack of consistency at Unicom points to areas for improvement. Despitea sharp cut in data tariff, we note the increase of data usage in 2H15 wasinadequate to deliver higher data ARPU (per sub). In 2016, we expect ChinaUnicom will aim to price its mobile data service more precisely in order toachieve a higher data ARPU.