Chinese telecoms: G forces
Equipment makers should do better from 5G-related business than mobile operators
Ask not what your country can do for your stockholders, but what you can do for your country’s mobile data connectivity. Authoritarian China is better able to extract investment from telecoms franchise holders than many other governments. A study from the information ministry has mooted a Rmb1.7tn ($249bn) bill payable by the industry in the five years to 2025. This represents a reckoning in the wake of the introduction of 5G technology — itself an opportunity — earlier this month.
The ministry wants telecoms businesses to spend double their outlay on 4G in the half-decade to 2018. China Unicom’s share of mobile data traffic and base stations in 2016 amounts to roughly 20 per cent. If the operator were to pay a proportionate share of proposed 5G investment it would be equivalent to 82 per cent of its total capital spending in the past five years.
China Unicom shares suffered in 2015 partly due to its slowness to offer 4G coverage. Despite some catch-up, its networks are underutilised. The group dealt with any excess capacity by offering unlimited data plans in February, causing a price war.
The economic potential of 5G is nevertheless high. The ministry report claims it could add 3.2 per cent to annual GDP from 2025. Year-on-year growth in China’s mobile data use has dipped below 120 per cent only twice in the past 17 months.
Beijing has long mulled plans on how best to share the spending burden. Barring any offsetting benefits, Bernstein analysts project a 21 per cent hit to Unicom’s market value. On the other hand, specialist equipment manufacturers should do much better from 5G-related business than mobile operators. ZTE, for example, looks inexpensive to European peers on a forward price earnings multiple. That is partly due to to alleged Iran sanctions breaches.
When Beijing’s spending drive on telecoms finally materialises it should be a major beneficiary. The market may well make that call earlier.