China Mobile:Monetizing mobile data traffic steadily via 4G business

Event

At Macquarie’s Greater China Conference (GCC) Tuesday, China Mobile metwith a diverse range of investors and discussed various topics with thoseinvestors.Impact

Update on 4G business. As the company already gained 64.2m 4G net addsin 1Q16, China Mobile essentially achieved 34% of its 4G net adds target in1Q. With the company already showing momentum attracting new 4Gsubscribers to its network, we expect China Mobile should experience minimalheadwind in terms of achieving its 2016target for 4G subscriber base.

Blended ARPU. As the government further promotes “speed upgrade andtariff reduction” initiative (without setting explicit magnitude for tariff reduction),we expect operators, including China Mobile, to lower mobile data tariffs on apiecemeal basis instead through a sharp cut. With price elasticity of demandremaining >1, we believe mobile data usage should increase correspondinglyand mobile data revenue should also benefit.

Selling expenses stay at reasonable level as competition remainsrational. For 2016, China Mobile guided that it could spend no more thanRMB11.1bn on handset subsidies (similar to 2015figure). Overall, we viewthe company’s disciplined approach towards handset subsidies as a goodsign that the mobile industry remains in a rational competitive environment.

Capex plan. China Mobile’s capex spend on 2G/3G has declined to arelatively insignificant amount. Given China Mobile’s 4G rollout is mostlycompleted, 4G capex is projected to come down as well in 2016.