In this article, we compare China's three incumbent telecom carriers:
China Mobile (中国移动)(HKEX: 0941)(SHA: 600941)
China Telecom (中国电信)(HKEX: 0728)(SHA: 601728)
China Unicom (中国联通)(HKEX: 0762)(SHA: 600050)
The telecommunications industry in China is heavily regulated and is dominated by the three abovementioned state-owned companies.
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Introducing China's Telecom Industry
The telecommunications industry in China was and still is a restricted sector with only state-owned companies allowed to operate.
Initially, all telecommunication operations were controlled by the Ministry of Post and Telecommunications (邮电部). However, over time, other ministries were granted permission to operate their own telecommunication networks in order to meet ministry-specific needs. The original telecommunication network operated by the Ministry of Post and Telecommunications evolved into what is now China Telecom (中国电信), with the formal adoption of the China Telecom name in 1995. The telecommunication networks operated by other ministries merged to form China Unicom (中国联通) in 1994. In 1997, China Telecom's mobile operations in Zhejiang and Guangdong provinces were separated to form China Telecom (Hong Kong). Subsequently, in 1999, the remainder of China Telecom's mobile businesses were transferred to China Telecom (Hong Kong) and China Telecom (Hong Kong) was renamed China Mobile (中国移动).
A fourth telecom player, China Broadnet (中国广电), does exist but operates on a much smaller scale than the three incumbents. China Broadnet was founded in 2014 as China Broadcasting Network (CBN) Corporation (中国广播电视网络有限公司), a consolidated entity formed as a result of the merger of many regional broadcasting companies. CBN is the sole network operator authorized to broadcast television on a nationwide basis. In 2016, China Broadnet was granted a license to operate mobile and broadband services, thus becoming China's fourth largest telecom carrier. Currently, China Broadnet is engaged in television broadcasting services, mobile and broadband services, as well as some cloud computing services. The company is privately held (i.e. not publicly listed), and not many business statistics are available. The latest available statistics show that China Broadnet had 8.7 million 5G users in May 2023, compared with 707.0 million 5G users for China Mobile, 290.6 million 5G users for China Telecom, and 229.6 million 5G users for China Unicom as of the same month.
Introducing China's Three Telecom Incumbents
In this section, we briefly summarize further information about the three telecom carriers. The companies' business models are discussed in the subsequent section.
China Mobile (中国移动)
China Mobile went public on the New York Stock Exchange (NYSE: CHL) and the Hong Kong Stock Exchange (HKEX: 0941) in 1997 under the initial entity name China Telecom (Hong Kong). In January 2022, the company listed on the Shanghai Stock Exchange (SHA: 600941). As of the end of 2022, China Mobile had 975 million mobile customers and 272 million wireline broadband customers.
China Telecom (中国电信)
China Telecom went public on the New York Stock Exchange (NYSE: CHA) and the Hong Kong Stock Exchange (HKEX: 0728) in 2002. In August 2021, China Telecom went public on the Shanghai Stock Exchange (SHA: 601728). As of the end of 2022, China Telecom had 391 million mobile subscribers and 181 million wireline broadband subscribers.
China Unicom (中国联通)
China Unicom went public on the New York Stock Exchange (NYSE: CHU) and the Hong Kong Stock Exchange (HKEX: 0762) in 2000. The company's ultimate controlling shareholder, China United Network Communications (中国联合网络通信集团有限公司), went public on the Shanghai Stock Exchange (SHA: 600050) in 2002. As of the end of December 2022, China Unicom had 320 million mobile subscribers and over 100 million wireline broadband subscribers.
US Delisting
In January 2021, the New York Stock Exchange suspended trading of China Mobile, China Telecom, and China Unicom American depository receipts (ADRs) due to the three companies' alleged connections with the Chinese military. The ADRs of the three telecom companies were ultimately delisted from the New York Stock Exchange.
Business Portfolio
The three telecom companies have identical business models in all material aspects. Specifically, all three companies primarily operate mobile carrier and landline telephone services, broadband services (including dedicated broadband lines for large customers such as universities), and cloud computing services. The cloud computing services include the operation of internet data centers (similarly to companies such as Chindata, GDS, and VNET, discussed here) and content distribution networks*, the provision of public and private cloud services, and as well as the provision of support services related to the Internet of Things (IoT) (e.g. providing internet access for cars and shared bikes).
*A content distribution network is a network of servers distributed across various geographical locations with the purpose of delivering faster web performance by caching content near end users (see a more detailed explanation here)
Financial Comparison
In this section, we examine the three telecom providers' financial and business metrics.
We note that all three companies only have one business segment for financial reporting purposes, and that China Mobile only obtained a wireline broadband license and related broadband resources in 2015 by acquiring the assets and businesses of a wholly-owned subsidiary.
Financial Metrics
#1: China Mobile Generated A Total Revenue of RMB937.3bn In 2022, Followed By China Telecom At RMB481.4bn And China Unicom At RMB354.9bn
China Mobile is the clear and consistent leader in revenue over the past ten years, with a total revenue that is roughly double the revenue generated by China Telecom and approximately 2.5 times the revenue generated by China Unicom in each year. In terms of revenue growth, China Mobile recorded a total revenue compound annual growth rate (CAGR) of 3.9% from 2013 to 2022, whereas China Telecom recorded a total revenue CAGR of 4.1% and China Unicom recorded a total revenue CAGR of 1.9% over the same period.
In 2022, China Mobile generated RMB937.3 billion in total revenue, while China Telecom generated a total revenue of RMB481.4 billion and China Unicom generated a total revenue of RMB354.9 billion.
#2: Telecommunication Services Account For The Majority Of Total Revenue For All Three Companies
Although the three telecom providers have only one financial reporting segment each year, each management team does provide a breakdown of revenue as being generated from telecommunication services or other revenue sources. Telecommunication services primarily refer to services related to mobile and landline telephones, as well as wireline broadband, but can also include other services depending on the company such as applications and information services. Other revenue sources primarily refer to the sales of goods such as mobile terminals and wireline equipment. As shown below, approximately 85% to 90% of each provider's revenue is generated by telecommunication services.
Note: China Telecom does not report a specific figure for telecommunication services revenue in 2013
#3: The Providers Are Driven By Different Mixes of Telecommunication Service Drivers
We examine the two largest constituents of telecommunication services revenue: mobile services and wireline (broadband) services. All three providers report a mobile services revenue figure, but have different reporting metrics for their wireline businesses. Specifically, China Telecom and China Unicom report a wireline services revenue number which includes all wireline services (including, for example, wireline voice), whereas China Mobile only reports wireline services revenue generated by wireline broadband. We show the mobile services revenue and wireline (broadband) services revenue for each company below, as well as the relative contribution of each revenue type to the company's total telecommunication services revenue. Data is unavailable in certain years.
China Mobile's telecommunication services revenue is largely dominated by mobile services, although the share of wireline broadband services revenue is gradually increasing each year. This is probably due to the fact that China Mobile only launched its wireline broadband business in 2015, and is thus likely still in the ramping up stage of the broadband business. In 2022, mobile services and wireline broadband services accounted for 84.3% and 12.9% of total telecommunication services revenue respectively.
China Telecom generated more revenue from wireline services than mobile services in the earlier half of the past decade, although there seems to be a converging trend between the two revenue sources. In 2022, mobile services and wireline services contributed to 47.6% and 52.4% of total telecommunication services revenue respectively.
Note: total telecommunication services revenue is unavailable in 2013 and wireline services revenue data is unavailable in 2014. Since China Telecom's mobile services revenue and wireline services revenue add up to 100% of reported telecommunication services revenue each year, we presume that wireline services contributed to 58.2% (i.e. 100% minus 41.8%) of telecommunication services revenue in 2014.
China Unicom generates more revenue from mobile services than wireline services, although the gap is closing in recent years. In 2021, mobile services and wireline services accounted for 55.4% and 43.8% of total telecommunication services revenue respectively.
Note: mobile services revenue and wireline services revenue are unavailable in 2022
#4: China Mobile Had The Highest Operating Profit Margin Of 13.8% In 2022, Followed By China Telecom At 6.9% and China Unicom At 3.5%
China Mobile is also the clear leader in terms of operating profitability, with an operating profit margin that is roughly double the operating profit margin of China Telecom and between three to five times the operating profit margin of China Unicom in most years. A comparison of each company's operating expenses shows that China Mobile has higher operating margins due to a combination of factors, including relatively lower network operations and support expenses and personnel expenses than China Telecom, as well as relatively lower depreciation and amortization expenses and personnel expenses than China Unicom.
Trend-wise, China Mobile's operating profit margin gradually declined over the past ten years from a high of 20.5% in 2013 to a low of 13.8% in 2022. China Telecom's operating profit margin also declined, albeit more slightly, from 8.5% in 2013 to a low of 6.9% in 2022. Both companies' declining margins are due to rising network operations and support expenses as well as increasing personnel costs. In contrast, China Unicom's operating profit margin dipped towards the middle of the past decade before making a rebound in the latter half. The dipping trend is primarily due to higher depreciation and amortization expenses particularly in 2016 and 2017. Although depreciation and amortization expenses dropped slightly as a percentage of revenue from 2020 to 2022, China Unicom still faced pressure from rising personnel expenses similarly to China Mobile and China Telecom.
Note: China Unicom does not directly report an operating income figure. We compute an operating income metric for China Unicom in a manner that is comparable with the reported operating income figures for China Mobile and China Unicom. Specifically, we calculate China Unicom's operating income as total revenue minus interconnection charges, depreciation and amortization, network, operation and support expenses, employee benefit expenses, costs of telecommunication products sold, and other operating expenses.
Note: we calculate the operating profit margin metric for China Unicom using each year's operating income figure as computed above.
#5: China Mobile Had The Highest Net Profit Margin Of 13.4% In 2022, Followed By China Telecom At 5.8% and China Unicom At 4.7%
Finance costs, interest income, and the company's share of profits from associates and joint ventures are added to and subtracted from operating income to derive net income. Rather unsurprisingly, China Mobile is the leader in terms of net profitability with a net profit margin that is 2.5 to three times the net profit margin of China Telecom and three to four times the net profit margin of China Unicom. In terms of trend, China Mobile's net profit margin decreased gradually from a high of 18.3% in 2013 to a low of 13.4% in 2022, largely as a carried forth result of the company's declining operating profit margin. In contrast, China Telecom's net profit margin is relatively more stable, and China Unicom's net profit margin shows a dipping pattern with a rebound towards the last part of the previous decade.
Business Metrics
Next, we compare the three providers based on the number of users in each company's mobile and wireline broadband customer bases, as well as the monthly average revenue per user (ARPU) for both mobile and broadband customers.
#1: China Mobile Had 975 Million Mobile Users In 2022, Compared With China Telecom's 391 Million and China Unicom's 320 Million Users
China Mobile is the clear leader in terms of mobile customer base over the past decade, whereas China Unicom had the second largest mobile customer base from 2013 to 2018 before being overtaken by China Telecom. Management across the three companies do not discuss reasons for the year-to-year fluctuations in customer base number, but we think they may be affected by factors such as price competitions between the companies to attract customers to switch carriers, or potential artificial inflation of user numbers (for example, employees may create multiple new user accounts to meet sales targets or to receive bonus rewards). As of the end of 2022, China Mobile had 975 million mobile users, China Telecom had 391 million mobile users, and China Unicom had 320 million mobile users.
#2: China Mobile Has The Highest ARPU Among The Three Companies, While The Overall Trend Seems To Be Converging
We also compare the three providers' mobile ARPU although available data is relatively limited. China Mobile is the leader in terms of mobile ARPU, although there seems to be a general trend of convergence in ARPU over the past decade. In 2022, China Mobile had a mobile monthly ARPU of RMB49.0 and China Telecom had a mobile monthly ARPU of RMB45.2. China Unicom's last reported mobile ARPU was in 2021 with a monthly ARPU of RMB43.9.
#3: China Telecom Had The Largest Wireline Broadband Customer Base Before Being Overtaken By China Mobile In 2018
China Telecom had the largest wireline broadband customer base from 2013 to 2017, before being overtaken by China Mobile. Although China Mobile only launched its wireline broadband business in 2015, the company's customer base grew rapidly from 55 million users in 2015 to take the lead with 157 million users in 2018 and ultimately 272 million users in 2022. In contrast, China Telecom's and China Unicom's customer bases grew more slowly, with China Telecom's customer base increasing from 100 million users in 2013 to 181 million users in 2022, and China Unicom's customer base growing from 65 million users in 2013 to 100 million users in 2022.
Note: China Unicom's management does not provide a specific value for the company's wireline broadband customer base in 2022. Management simply stated that the company had "over 100 million" wireline broadband users.
#4: China Unicom Has The Highest Broadband (Access) ARPU, With An Overall Trend Of Convergence
We try to compare the wireline broadband ARPU metric for the three providers, although the data is rather limited and inconsistent across companies. China Mobile reports a wireline broadband ARPU metric, while China Telecom and China Unicom report a broadband access ARPU metric. It is unclear how comparable China Mobile's wireline broadband ARPU metric is with the broadband access ARPU metrics reported by China Telecom and China Unicom.
China Telecom only reported its broadband access ARPU once in 2020, although the company also has a broadband blended ARPU metric reported every year from 2019 to 2022, which takes into account additional broadband-related revenues such as smart home application and other services on top of the basic broadband access revenue. China Mobile has a similar metric called household customer blended ARPU, although this metric is not directly comparable with China Telecom's broadband blended ARPU because the household customer blended ARPU only takes into account revenue from household broadband access and related services, whereas China Telecom's broadband blended ARPU takes into account revenue from both household and corporate clients.
We proceed with our analysis keeping these limitations in mind.
As shown below, China Unicom has the highest wireline broadband (access) ARPU, although China Mobile and China Unicom seem to be somewhat converging in ARPU over time. In 2022, China Mobile had a wireline broadband (access) ARPU of RMB34.1, whereas China Unicom's last reported wireline broadband (access) ARPU was RMB41.3 in 2021. In 2020, China Telecom had a wireline broadband (access) ARPU of RMB38.4.
The Future of China's Telecom Providers
In this section we discuss the future of China's key telecom providers.
#1: General Company Goals Spanning 5G, Cloud Computing, And Monetization From Digitalization