[20081121]Telecom Service : China Mobile, China Telecom "Oct. Operating access, released, Mobile, months, market

yangh

Events:
China Mobile and China Telecom released October 2008 operating data.
•           China Mobile’s net adds totaled 7.2mn (-0.7% MoM, +9.0% YoY), with net adds market share up 1.1ppt MoM to 93%.
•           China Telecom lost 1.09mn access lines (vs. 0.58~1.22mn net loss in the first nine months of 2008). Broadband subscriber net adds were 0.70mn (-4.1% MoM, +27.3% YoY). China Telecom wrote down the actual CDMA subscribers it took over from CU from 41.7mn to 29.1mn; and its CDMA business registered a net loss of 0.68mn subs in October 2008.
 
Our Comments:
CT aggressively wrote down the CDMA subscriber numbers it acquired from CU from 40mn to barely 30mn. We regard this as good news, not bad, for CT because: 1) the write-down is non-cash and if it can justify a corresponding write-off of the network value in the hands of CT’s parent company, it may actually save leasing fees or even the future network buy-back price; 2) with a clean and low base, CT would have a larger potential for CDMA development instead of continuously trying to fill in a hidden hole. We expect CDMA net-adds numbers to bottom out as early as November or December 2008. CT’s fixed-line business part (including broadband) is still rather stable.
China Mobile net adds in October still stable, but we do expect pressure from the following three areas: 1) CM may preemptively lower its high-end margins to prevent potential churning away; 2) weak economic situation may worsen the ARPU decline trend; and 3) CT’s CDMA network will start to pose a meaningful threat beginning around year-end 2009.
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