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ICT Sector China

January 2014



Table of Contents

I. Sector Overview 1. Sector Highlights

2. Economic Importance

3. Sector Forecast

4. Sector Forecast (cont’d)

5. Revenues and Price Level

6. Mobile Phone Market

7. ICT Prices

8. ICT Infrastructure

9. ICT Foreign Trade

10.Employment & Wages

11.Government Policy

II. Fixed Line Segment 1. Subsector Highlights

2. Fixed Line Penetration

3. Fixed Line Segment Main Indicators

III.Wireless Segment 1. Subsector Highlights

2. Mobile Services Market

3. Mobile Market Shares

4. Wireless Segment Revenue

5. 4G Market Expectations

6. Mobile Penetration by Region

IV.Internet 1. Subsector Highlights

2. Internet Penetration

3. Internet Purpose of Use

4. Internet Segment Major Indicators

5. Broadband Segment

6. Mobile & 3G Internet

V. Digital Television 1. Subsector Highlights

2. Digital TV Market Size

3. User Structure

4. Digitisation

V. Main Players 1. China Mobile Limited

2. China Mobile Limited

3. China Mobile Limited

4. China Telecom Corporation Limited



7. China United Network Communications Limited



VI.Regional Distribution 1. ICT Sector Regional Distribution



I. Sector Overview



Sector Highlights

China is further extending its lead as the largest ICT market globally, leading both in terms of mobile and internet users while still being

far from its full potential. In recent years, the industry has experienced robust, often double-digit growth, outperforming the overall

economic development and remaining largely unfazed by the global economic crisis, with a slight slowdown following the restructuring

initiated by the government in 2008.

Development

Focus

Operators

Challenges

With markets in coastal regions and big cities gradually approaching saturation, especially as far as wireless and broadband

communications are concerned, the industry's focus is increasingly turning to 2nd and 3rd tier cities, rural areas and regions within the

country. Furthermore, the ICT infrastructure development of those areas is on the government's priority lists and is expected to

continue to receive substantial support from the state.

The three main telecom service providers, China Mobile, China Unicom and China Telecom – all of them state enterprises – have

established solid positions on the market. China Unicom and China Telecom are slowly closing up on the biggest player China Mobile

especially in the 3G segment where the market is about evenly distributed between the three operators. However, China Mobile is

likely to be the main winner of the 4G roll-out over the next few years.

In spite of the positive development, the industry is facing a number of significant challenges. Those include the overall weakness in

the technical innovation capacity of the sector, a number of licensing and regulatory issues, the relatively low price to quality ratios as

compared to the rest of the region as well as a constant pressure on profit margins.



Source:

Comments

Economic Importance

The ICT sector has experienced solid growth and established itself as one of the pillars of Chinese economy, playing a key role in the increase

in domestic demand that the Chinese government is actively pursuing.

3G and 4G network upgrades have been a major driver in the industry, helping fixed asset investments regain ground and return to positive

growth in 2011 and 2012 after a drop in 2010.

Economic importance

National Bureau of Statistics, Ministry of Industry and Information Technology

2008 2009 2010 2011 2012

GDP, RMB bn 31,405 34,090 40,151 47,310 51,947

GDP Growth, real 9.6% 9.2% 10.4% 9.3% 7.8%

GDP: Information transmission, computer service and software, RMB bn 786 816.4 888.2 978 n/a

GDP: Information transmission, computer service and software: % of total 2.50% 2.39% 2.21% 2.07% n/a

ICT revenue growth 11.8% 3.5% 6.7% 9.9% 8.9%

Fixed asset investments, RMB bn 295 372 320 333 361

Number of employees, mn 1.42 1.74 1.74 2.03 n/a

Communication service, CPI change y/y -1.2% -0.5% -0.3% -0.2% -0.1%

Overal Inflation, CPI change y/y 5.9% -0.7% 3.3% 5.4% 2.6%



Source:

Comments

Sector Forecast

The current growth in number of subscribers is expected to continue over the next 5 year period, with the penetration rate exceeding one subscription per

person and approaching the present average values in developed countries in spite of the uptrend losing some momentum.

Subscribers upgrades from 2G to 3G and 4G will be one of the major drivers in the industry, with 2G subscriptions already entering a seemingly irreversible

decline.

The aggressive struggle for attracting new 3G subscribers is to continue, with 4G now further opening new ground for competition, having a negative impact

on operators' profits.

Wireless Segment Forecast

BMI

2012 2013f 2014f 2015f 2016f 2017f

Number of mobile phone subscribers, mn 1110.2 1231.2 1329.7 1422.8 1508.2 1583.6

Number of mobile phone subscribers/100 inhabitants 80.6 88.9 95.4 101.5 107.0 111.9

Number of mobile phone subscribers/100 fixed-line subscribers 399.1 453.5 500.8 546.8 591.5 633.7

Number of 3G & 4G phone subscribers, mn 233.4 385.2 539.2 647.1 711.8 768.7

Number of 3G & 4G phone subscribers/100 inhabitants 17 27.8 38.7 46.2 50.5 54.3



Comments

Source:

Sector Forecast (cont’d)

Eroded by the expansion of the wireless segment, fixed line services are expected to resume their downward trend with penetration rate

losing on average about half percentage point annually.

Internet penetration is relatively low and has much growth potential. However, the costs of the infrastructure needed for further retaining the

strong momentum, especially in the rural regions, will likely be prohibitive for too rapid expansion.

Fixed Line Segment Forecast Internet Segment Forecast

BMI

2013 2013f 2014f 2015f 2016f 2017f

Number of internet users, mn 564.0 592.2 610.0 628.3 647.1 666.5

Number of internet users per

100 Inhabitants 41 42.7 43.8 44.8 45.9 47.1

Number of broadband internet

subscribers, mn 175.2 188.1 199.4 207.4 215.7 224.3

Number of broadband internet

subscribers, mn 12.7 13.6 14.3 14.8 15.3 15.8

278

269

263

258

253

248

20.2

19.4

18.9

18.4

17.9

17.5

16

16.5

17

17.5

18

18.5

19

19.5

20

20.5

230

235

240

245

250

255

260

265

270

275

280

285

2012 2013F 2014F 2015F 2016F 2017F

Number of main telephone lines in service, mn

Number of main telephone lines/100 inhabitants



Comments

Source:

Revenues and Price Level

Non-voice services proceed to consistently outpace the overall industry revenue growth. Fixed-line services, on the other hand, are the only

sub-segment with negative growth.

Price wars between the three major telecoms are squeezing profits. China Mobile has been the main loser in those wars, while its competitors

have gained some advantage and rapidly expanded their market shares, especially in the higher-end 3G segment.

ICT Revenues & Price Change 2012 ICT Sector Revenue Breakdown

Ministry of Industry and Information Technology

814 842 899

988

1,076

8.0%

9.5% 9.3%

4.2%

1.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

200

400

600

800

1000

1200

2008 2009 2010 2011 2012

ICT Revenues, RMB bn ICT Price Level Change, y/y

Revenue

RMB bn

% of total

revenue

Change,

y/y

Non-voice services 532.2 49.5% 16.9%

Voice services 544.0 50.5% 2.3%

Mobile voice services 481.4 44.7% 4.9%

Fixed line voice services 62.6 5.8% -13.9%

Value-added services 216.2 20.1% 6.8%

Mobile VAS 189.7 17.6% 6.1%

Fixed line VAS 26.4 2.5% 12.1%



Comments

Source:

Mobile Phone Market

While sales volumes have experienced a rapid expansion after 2011, phone sales value saw a slower growth rate. The main reason for this is the large

number of increasingly affordable smartphones on the market, which is weakening the demand for phones. Market researcher Euromonitor International

estimates retail volume sales growth for smartphones in 2013 to have reached as much as 40%. Meanwhile, Taiwanese research firm Topology expects

smartphone shipments in China to grow by 17.5% in 2014.

Samsung was the leader in mobile phone sales in 2012, accounting for 24% of the Chinese market; followed by local giant Lenovo (11%), Nokia (10%),

Huawei (9%), ZTE and Apple (7% each).

Sales Sales Value

CCID Consulting

148

160

161

250

275

2008

2009

2010

2011

2012

Mobile Phone Sales, Sets mn

182 187

220

277

344

8.4%

2.5%

17.8%

25.8% 24.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012

Mobile Phone Sales Value, RMB mn Growth y/y



Source:

ICT Prices

Mobile Phone Prices

ICT Services 36 Cities Average Monthly Fees

Call Prices (2013)

Price Monitoring Center, NDRC

Price

Telephone Fee: 1st 3 Minutes: Inner District, RMB 0.21

Telephone Fee: Every Minute: Inter District, RMB 0.18

Mobile Phone Fee: China Unicom: Local Call: Post Paid, RMB/min. 0.27

Mobile Phone Fee: China Telecom: Local Call: Post Paid, RMB/min. 0.27

Mobile Phone Fee: China Mobile: Local Call: Shenzhou Pre Paid

Card, RMB/min 0.28

Mobile Phone Fee: China Mobile: GSM Card: Package Fee,

RMB/min 0.23

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

Mobile Phone: Color Display with Pick-up Head, 36 Cities Avg Retail Price

0

20

40

60

80

100

120

140

Cable TV Monthly Fee, RMB 2 M Internet Monthly, RMB Fixed Telephone Monthly Rental, RMB



Source:

ICT Infrastructure

Capacity of Office and Mobile Telephone Exchanges

Length of Optical Cable Lines

Long-Distance Capacity

National Bureau of Statistics, Ministry of Industry and Information Technology

2,735 3,519

4,073 4,280

5,777 6,779

8,295

9,963

12,119

14,793

594 695 723 722 792 798 831 818 842 868

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Length of Optical Cable Lines, km th Length of Long Distance Optical Cable Lines, km th

16.9 16.8

16.4

16.0 16.0

2008 2009 2010 2011 2012

Capacity of Long-distance Telephone Exchanges, mn circuits

508.6 492.7 465.4 434.3 439.1

1,145.3

1,440.8 1,502.8 1,716.4

182.8

2008 2009 2010 2011 2012

Capacity of Office Telephone Exchanges, lines mn

Capacity of Mobile Telephone Exchanges, lines mn



Source:

Comments

ICT Foreign Trade

Export of ICT services enjoyed a long period of above 20% growth before declining in 2009 but it has since returned to a double-digit growth rates. ICT

service exports now account for more than a third of the country's total service exports, while the contribution of ICT goods both in terms of exports and

imports to the country's overall goods trade is firmly decreasing.

According to the World Bank definition, ICT goods trade includes telecommunications, audio and video, computer and related equipment; electronic

components; and other information and communication technology goods. Software is excluded.

ICT Exports & Imports

World Bank

22.2 27.7

39.1 47.0 45.9

53.6 60.7

68.5 30.7% 30.7% 29.3%

27.7% 29.7% 29.1%

26.8% 25.3% 26.1%

24.5% 21.2% 21.9%

20.4%

18.0%

24.9% 24.4%

26.5%

28.3%

31.8% 31.3% 32.8%

34.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2005 2006 2007 2008 2009 2010 2011 2012

ICT service exports, USD bn ICT goods exports, % of total goods exports

ICT goods imports, % total goods imports ICT service exports,% of service exports, BoP



Source:

Employment & Wages

Employment

ICT Sector Average Yearly Salary, RMB

Largest Employers

Ministry of Human Resources and Social Security; Fortune China

Employer Number of Employees, 2013

China Telecom 305,676

China Unicom 218,598

China Mobile 182,487

1 1 1 1 1 1 1 1 1

2 2

2

0.16% 0.15% 0.15% 0.17% 0.18% 0.18% 0.19% 0.19% 0.19%

0.23% 0.23%

0.27%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0

0.5

1

1.5

2

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ICT Sector Employees, mn Share of Total Workforce, %

0

20,000

40,000

60,000

80,000

100,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

ICT sector ICT: State enterprises Nationwide



Source:

Government Policy

Regulator The main body regulating the ICT industry in China is the Ministry of Industry and Information Technology (MIIT), which in

2008 replaced the Ministry of Information Industry. The ministry regulates the wireless, Internet, broadcasting,

communication, software and electronic goods markets.

Five Year

Plan

New generation information technologies and high-end equipment manufacture are among the seven industries

highlighted in China's 12th Five Year Plan (2010-2012). The government's support is reflected in a number of ambitious

initiatives featured in the plan, including Cloud Computing and Smart Grid deployments, construction of Smart Cities and

triple network convergence (telecom, computer and cable TV networks), among others.

Entry

Barriers

The Chinese ICT sector is not very open to new competitors and the entry barriers are rather high. Foreign enterprises are

only allowed to participate in the forming of joint-ventures and the capital held by foreign stockholders is limited to 50% for

any company in the industry. In many cases foreign investors and their Chinese counterparts need to go through a very

demanding application process before being able to conduct ICT activities.

CIMB, CCID, WSJ



Source:

Government Policy (cont'd)

Broadband

China

Proposed in 2011 and officially released in August 2013 by the new Chinese government, the "Broadband China" strategy

sets a number of milestones for the future development of the broadband segment in the country. The plan is expected to

accelerate the construction and upgrade of network and telecom infrastructures, boost fiber-to-the-home (FTTH),

drastically speed up Internet access, and push forward the convergence of telecom, Internet and broadcasting networks.

The strategy includes providing Wi-Fi coverage in "key public urban areas" by the end of 2013, bringing broadband to

roughly 400 million households – or half of China's total – by 2015 and reaching full nationwide broadband coverage by

2020, rising urban and rural broadband speed to respectively 50 and 12 Mbps by 2020.

Mobile broadband coverage is to reach 32.5%, broadband coverage in administrative villages is forecast to reach 95% by

2015 and 98% by 2020. Major cities are to enjoy gigabit speeds (1000 Mbps) by the end of the planning period in 2020,

and 85% of the population is expected to be using 3G and 4G mobile services by that time. The plan is estimated to cost a

total of USD 326bn.

Technode, JRJ



II. Fixed Line Segment



Subsector Highlights

Decline

After the steady growth in the first half of the 2000s, the subsector found itself under pressure from wireless service

providers and the number of fixed line subscribers has since been steadily going down. With competition in the

industry almost entirely concentrating in the wireless segment, the fixed line business is seen as much less

appealing. Besides, deployment of new landline infrastructure is often more costly and difficult than building wireless

networks, especially in China's underdeveloped regions where the terrain is often challenging.

Bundling

The main strategy to slow down the decline in the fixed line segment has been bundling the services with broadband

internet and other wireline services. However, there are fundamental issues and technical limitations in the industry

which can hardly be resolved, thus fixed line voice services in the segment are likely to become less and less

attractive.



Comments

Source:

Fixed Line Penetration

Somewhat surprisingly, after the rate of decline had been slowing down in recent years, early data from 2013 showed that the its rate has

started to pick up. Preferences for mobile communication are growing stronger, the fixed-line services are losing their appeal, and with

operators focused on expanding their wireless networks, no trend reversal is expected anytime soon.

Penetration Fixed Lines vs. Mobile Subscriptions


262.7

311.8

350.4 367.8 365.6

340.4

313.7 294.3

285.1 278.2

21.1

24.1

27.0 28.1 27.8

25.8

23.6 22.1 21.3 20.7

0

5

10

15

20

25

30

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of Fixed Lines, mn

Penetration: Fixed Lines per 100 Inhabitants

270 335

393 461

547

641 747

859

986

1,112

263 312

350 368 366 340 314 294 285 278

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of Fixed Lines, mn Number of Mobile Subscribers, mn



Source:

Fixed Line Segment Main Indicators

Main Indicators


2008 2009 2010 2011 2013

Domestic Long Distance Fixed Line Call Volume, Units mn 86,969 81,743 71,837 83,920 n/a

International Long Distance Fixed Line Call Volume, Units mn 582.3 434.1 591.3 1045.5 n/a

Number of Urban Fixed Line Subscribers, mn 231.6 211.9 196.6 191.2 188.9

Urban Fixed Line Subscribers, % of Total 68.0% 67.5% 66.8% 67.1% 67.9%

Number of Urban Fixed Line Subscribers: Residential, mn 155.9 129.7 119.7 114.1 110.1

Number of Rural Fixed Line Subscribers, mn 108.8 101.8 97.8 93.9 89.2

Rural Fixed Line Subscribers, % of Total 32.0% 32.5% 33.2% 32.9% 32.1%

Number of Rural Fixed Line Subscribers: Residential, mn 96.1 88.1 83.3 78.6 73.2

Total Residential Fixed Line Subscribers, mn 252 218 203 193 183

Number of Public Telephones, mn 27.7 27.1 26 24.7 23.5



III. Wireless Segment




Global

Position

China is the largest wireless ICT market in the world with now over 1.2bn mobile subscribers, with India second with

over 900mn and the United States third with over 310mn. With 90.8 phones per 100 inhabitants, mobile penetration

remains slightly below the global average of 97 which is however already in sight.

4G

In December 2013, the government released the long-awaited licenses for commercial fourth-generation (4G)

mobile broadband network technologies, aimed at mobile devices such as smartphones and tablets. With some 20

times the download speed and loading capacity of 3G networks, the new technologies are to bring about a

significant improvement in the quality of mobile services and will open up new territories for development, while also

spurring a new wave of investments in the industry.

4G Uptake

While 4G offers much greater speed and capacity, the Chinese mobile data market shows little signs of willingness

to pay the higher price related to it. Therefore, initial growth in the 4G segment is to be largely driven by the

marketing efforts of service providers. 4G introduction will be one of the major developments to watch in 2014.

Prices

The competition between the three main players, China Mobile, China Unicom and China Telecom, is ferocious, with

prices of mobile services being a major instrument in the fight for market share. While this has had a negative effect

on profitability in the sector, the big winners from this development are mobile consumers who presently enjoy some

of the most affordable mobile services in the world.



Source:

Mobile Services Market

Penetration

At the end of 2013, the number of mobile

subscriptions reached 1.23bn, with 117.9mn net

additions for the year after 126mn in the previous

year. In the meantime new 3G users for the year

amounted to 168.9mn, with a large part of them

migrating from the 2G segment.

The mobile market in larger cities and the richer

provinces is approaching saturation, yet there is still

huge room for growth in small to mid-sized cities and

in the villages.

Regional Geography Segmentation, in USD bn (2012)

Comments

Ministry of Industry and Information Technology, Marketline

270.0 334.8

393.4 461.1

547.3 641.2

747.2 859.0

986.3

1,112.2

21.0 25.9

30.3 35.3

41.6 48.5

56.3 64.4

73.6 82.5

0

20

40

60

80

100

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of Mobile Subscribers, mn

Mobile Penetration per 100 Inhabitants

China 140.8

Japan 77.2

India 40.8 South Korea 19

Rest of Asia-Pacific 104.4



Source:

Comments

Mobile Market Shares

Smaller players China Unicom and China Telecom have been making headway on sector leader China Mobile over the last few years, both

companies benefitting more from 3G uptake. However, the introduction of 4G is expected to once more skew things back in favour of China

Mobile in the near future.

Market Shares, Subscriptions

CIMB, Marbridge

71.0% 71.0%

19.0% 18.6%

11.0% 10.4%

40.0% 37.7%

31.0% 32.8% 28.0% 29.6%

67.0% 64.4%

20.0% 21.3%

13.0% 14.2%

China Mobile 2011 China Mobile 2012 China Unicom 2011 China Unicom 2012 China Telecom 2011 China Telecom 2012

2G share 3G share Total share



Source:

Wireless Segment Revenue

Mobile Services Revenue

ARPU in the segment is already on the decline and

is only expected to further recede in the years to

come, pressured by competition between the three

major players in the sector.

China Unicom and especially China Telecom did

notably better in 2012 due to their performance in the

3G segment (unlike China Mobile, both companies

have an agreement with Apple to sell the iPhone);

however, this progress is expected to have ended by

the end of 2013 as the telecoms have nowhere to go

but to lower value subscribers.

Business Monitor International expects the

increasing introduction of value-added services to

help support ARPU levels.

Average Revenues per User (RMB)

BMI

2010 2011 2013 2013F 2014F 2015F 2016F 2017F

China Mobile 76.0 76.0 68.0 66.5 64.6 62.8 61.3 60.1

China Unicom 43.7 47.3 47.9 47.0 46.6 45.9 45.3 44.9

China

Telecom 54.2 52.6 55.4 54.4 53.4 52.4 51.4 50.9

Market

Average 67.4 67.9 62.7 61.4 59.9 58.4 57.1 56.2

498.7 564.5

628.2 716.2

793.4 798.8

55.4% 60.4%

69.9% 72.5% 73.7% 74.8%

15.1% 13.2% 11.2% 14.0% 10.8% 9.9%

0.0%

20.0%

40.0%

60.0%

80.0%

0

200

400

600

800

1000

2008 2009 2010 2011 2012 2013 Jan-Nov

Mobile services revenue, RMB bn % of total services revenue

Annual growth rate



Source:

4G Market Expectations

Market Size Forecast

Expected Subscribers Distribution, in mn

4G Device Market Share Forecast (2014)

Comments

CIMB

China Mobile is to benefit more from 4G development

compared to the other two major players as it has invested the

most in the construction of TD-LTE networks replacing the

underperforming TD-SCDMA networks. Therefore, China

Mobile is much better prepared for commercial operations. This

is going to give it a boost in the early stages of the 4G market.

After 4G TD-LTE licenses and asymmetric interconnection

were announced in late 2013, the focus is on the next phase

which involves FDD-LTE licenses. Those are expected to be

awarded in the near future, possibly within the current year.

47.0 208.0

489.0

3.0%

15.0%

36.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

100

200

300

400

500

600

2014 2015 2016

Number of 4G Subscribers 4G Penetration Rate

Coolpad 15%

Huawei 10%

ZTE 10%

Lenovo 5%

Other Domestic

Brands 10%

Foreign Brands 50%

29

138

318 397 418

9

26

73

104 120

10

44

98

121 127

47

208

489

622 665

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

2014F 2015F 2016F 2017F 2018F

ChinaTelecom

ChinaUnicom

ChinaMobile

Total



Comments

Source:

Mobile Penetration by Region

One of the major problems in the sector is the huge gap between mobile penetration levels in China's rich and poor provinces. In the most

developed cities of Shanghai and Beijing penetration rates are already comparable with those in developed countries, and in the richer

coastal provinces such as Guangdong, Zhejiang and Fujian there is on average about one subscription per person. On the other hand, in

many of the poorer provinces in the central and western parts of the country the penetration rates are less than half of the levels in more

developed regions.

Number of Mobile Users, mn Mobile Penetration, Subscriptions per 100 Inhabitants


2011 2013

Beijing 131.3 156.9

Shanghai 113.8 128.2

Zhejiang 105.7 117.9

Guangdong 103.4 118.7

Fujian 96.2 108.8

Yunnan 56.3 62.5

Guangxi 54.9 62.1

Anhui 54.7 60.5

Henan 53.8 61.6

Jiangxi 52.0 57.3

2011 2013

Guangdong 107.9 124.7

Shandong 71.2 75.9

Jiangsu 66.8 74.7

Zhejiang 57.6 64.4

Shanghai 26.2 30.1

Beijing 25.8 31.7

Hainan 6.7 7.8

Ningxia 5.2 5.9

Qinghai 4.6 5.4

Tibet 2.0 2.4



IV. Internet




Development The number of Internet users in the country is more than 610 million and growing, but penetration remains relatively

low as this covers only 45% of the China's total population. The gap between urban and rural areas, while still

significant, is gradually narrowing.

FTTH Growth

Underperfor

ming

Although China is the country with the most FTTH/O subscribers in the world, their number has been rising more

slowly than mobile subscribers. For instance, they only increased by 13 million during the first nine months of 2013,

which is barely equal to 10% of the growth of 3G service subscribers for the same period.

New Fixed-

line

Broadband

Player

The Ministry of Industry and Information Technology announced in December 2013 that would allow China Mobile,

the world's largest mobile network by subscribers, to enter the fixed-line broadband market in China. Prior to that

only its two major competitors in the telecom industry, China Unicom and China Telecom, were able to offer fixed-

line broadband services. The move is seen as positive from the point of view of stronger competition in the market.

Employment The Internet segment is expected to create employment for more than 23mn people by 2015.

Problems

The lack of competition is seen as holding the segment back as it gives service providers few incentives to improve

service quality while leaving consumers with a lack of alternatives. In addition, operators have been unwilling to

invest in fixed-broadband infrastructure in underdeveloped areas outside of major cities at the expense of building

their new less demanding and more lucrative 4G networks across the country.



Comments

Source:

Internet Penetration

While China's Internet users are leaders in the world in absolute terms, penetration remains low by global and even regional standards. However, there are

signs that the government will be aggressively step up its efforts to bring internet to the countryside and smaller cities.

What somewhat dampens the growth prospects, however, are the results of a CNNIC survey which show that at the end of 2012 as many as 77.3% of the

non-internet users in China said they will definitely not use Internet, the main reasons being computer illiteracy (66%) and age (23%). Even more

worryingly, the share of negative responses was much higher than in the 2011 survey (69.5%).

Users & Penetration Average Weekly Use

China Internet Network Information Center

298

384

457

513

564

618

85 107 125 136 156

177 214

277

332 377

408 441

23%

29%

34%

38%

42%

46%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013

Internet users, mn Rural internet users, mn

Urban internet users, mn Internet penetration, %

16 17

19 18

19

21

25

2007 2008 2009 2010 2011 2012 2013

Average Weekly Use of Intenet: hrs



Source:

Internet Purpose of Use

Purpose of Use, % of Total Users Purpose of Use, % of Total Users (cont’d)


2011 2013 2013

Internet Search 79.4% 80.0% 79.3%

Email 47.9% 44.5% 42.0%

Instant Messaging 80.9% 82.9% 86.2%

News 71.5% 73.0% 79.6%

Blogging 62.1% 66.1% 70.7%

Microblogging 48.7% 54.7% 45.5%

Forum/BBS 28.2% 26.5% 19.5%

Social Networking 47.6% 48.8% 45.0%

Online Literature 39.5% 41.4% 44.4%

2011 2013 2013

Online Gaming 63.2% 59.5% 54.7%

Online Music 75.2% 77.3% 73.4%

Online Video 63.4% 65.9% 69.3%

Online Shopping 37.8% 42.9% 48.9%

Online Payment 32.5% 39.1% 42.1%

Online Banking 32.4% 39.3% 40.5%

Online Securities Trading 7.8% 6.1% n/a

Group Purchases 12.6% 14.8% 22.8%

Travel Booking 8.2% 19.8% 29.3%



Source:

Internet Segment Major Indicators

Web Pages, Domains and Websites

International Outlet Bandwidth, Mbps mn

Internet Use by Place to Go Online

Device for Internet Connection


0.9 1.1

1.4

1.9

3.4

2009 2010 2011 2012 2013

International outlet bandwidth, Mbps Mn

11.9

16.8 16.8

8.7 7.7

13.4

18.4

1.5 2.9 3.2

1.9 2.3 2.7 3.2

2007 2008 2009 2010 2011 2012 2013

Number of Domain Names, mn Number of Websites, mn

2009 2010 2011 2013 2013

Home 83.2% 89.2% 88.8% 91.7% 89.8%

Internet cafes 35.1% 35.7% 27.9% 22.4% 18.7%

Work 30.2% 33.7% 33.2% 32.4% 32.5%

School 23.0% 23.2% 18.7% 15.7% 11.3%

Public place 15.7% 16.1% 13.6% 13.3% 14.6%

2009 2010 2011 2013 2013

Desktop PC 73.4% 78.4% 73.4% 70.6% 69.7%

Notebook PC 30.7% 45.7% 46.8% 45.9% 44.1%

Mobile phone 60.8% 66.2% 69.3% 74.5% 81.0%



Source:

Broadband Segment

Broadband Penetration

FTTH & DSL

Broadband Data

Comments

BuddeComm

In 2011, China was ranked 78th globally in terms of broadband

development, which was one place below its position in the

previous ranking done in 2006.

This reflects the slow expansion in poorer areas as well of the

relatively low service quality, with speed below global average

and nearly five times lower than the one offered in global leader

South Korea.

25.8 37.5

51.8 66.4

83.4 103.6

126.3

150.0

175.2 180.9 91.0%

45.4% 38.2%

28.2% 25.6% 24.2% 21.9% 18.7% 16.8% 16.8%

0%

20%

40%

60%

80%

100%

0

50

100

150

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 June2013

Broadband Subscribers, mn Annual Change

Household Penetration, % of Total

3.9 4.8 6.0 15.0

26.0 35.3

56.2

37.1 52.2

67.0

83.9

100.4 114.7 119.0

2006 2007 2008 2009 2010 2011 2012

FTTH Subscribers, mn DSL Subscribers, mn

2011 2013 H1 2013

Broadband Internet ports, mn 232 268 349

Average speed 1.4Mbps 1.9Mbps 2.1Mbps

% of broadband users with Internet speed

4 Mbps and above 40% 63% n/a

Households with FTTH access, mn 45 94 129 (est.)



Comments

Source:

Mobile & 3G Internet

High-speed data subscribers represent just over a third of the total SIM card users in China. This is in stark contrast with developed markets

where smartphones are used by as many as 70% of the customers of leading telecom operators.

Mobile Internet Users 3G Internet Subscribers, mn

China Internet Network Information Center, Ministry of Industry and Information Technology

155.5

233.4 276.8

302.7 317.7 355.6

388.0 418.0

467.8 500.2

Jun2009

Dec2009

Jun2010

Dec2010

Jun2011

Dec2011

Jun2012

Dec2012

Jun2013

Dec2013

Number ff Mobile Internet Users, mn

27 35

43

51

60

67

76

88

114 13

8

170

19 24

30 40

49 58

67

77 88

100 11

2

16

22

28

36

44

51

60 69

78 87

97

62 81

103

128

152

176

203

233

277

319

368

Mar,2011

Jun,2011

Sep,2011

Dec,2011

Mar,2012

Jun,2012

Sep,2012

Dec,2012

Mar,2013

Jun,2013

Sep,2013

China MobileChina UnicomChina TelecomTotal Number



V. Digital Television




Development

China is the world leader in terms of Digital Television users, as well as IPTV users (overtaking France in 2011).

IPTV users now amount to more than one quarter of the global IPTV users. While cable TV and IPTV have been the

main drivers of growth in the subsector over the last few years, terrestrial and satellite digital TV have been lagging

behind.

Segmentation The digital TV market in China is highly segmented as there are more than 300 provider companies in cities across

the country.

New Ventures China Mobile should be able to quickly build up a new broadband user base, especially if it is allowed to invest in a

new national cable TV company being formed through the consolidation of the many local operators across China.

Digitisation China is planning to reach full digitisation and switch off the analogue signal in 2015.



Comments

Source:

Digital TV Market Size

Having started recently from a low base, the market is still nowhere near saturation and continues its overall expansion at rapid rates, with

CAGR over the 2008-2012 period reaching a staggering 46.9%. While growth has started to slow down in the past few years, the solid upside

trend will certainly go on.

The above data does not include users of illegal satellite devices.

Digital TV Users Revenues

CCID Consulting

49.2

76.9

110.5

141.2

186.0

22.0 27.7 33.6 30.7 44.8

2008 2009 2010 2011 2012

Digital TV Total Users Digital TV Newly Added Users

166.3

191.1

232.9

279.4

335.9 34.5%

14.9%

21.9% 19.9% 20.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2008 2009 2010 2011 2012

Market Size, RMB bn Annual Growth



Source:

User Structure

Digital TV Users Digital TV User Growth

CCID Consulting

2008 2009 2010 2011 2012

Digital cable TV users, mn 45.5 66.5 88.2 111.1 140.1

Digital satellite TV users, mn 0.5 4.7 12.5 14 21.3

Digital terrestrial TV users, mn 0.9 1.4 2.1 2.5 2.9

IPTV users, mn 2.4 4.4 7.7 13.6 21.7

Total, mn 49.2 76.9 110.5 141.2 186.0

2008 2009 2010 2011 2012

Digital Cable TV User Growth 81.0% 46.0% 33.0% 26.0% 26.0%

Digital Satellite TV User

Growth 67.0% 840.0% 166.0% 12.0% 52.0%

Digital Terrestrial TV User

Growth 80.0% 56.0% 50.0% 19.0% 16.0%

IPTV User Growth 100.0% 83.0% 75.0% 77.0% 60.0%

Total Growth 81.0% 56.0% 44.0% 28.0% 32.0%



Source:

Comments

Digitisation

TV digitisation in China started in 2003 and is expected to be completed in 2015, with shorter timeframes set for major cities and

eastern/coastal areas and longer ones for the western regions of the country. Since the end of 2010, the process is formally in its forth stage,

which is also the last one.

Digitisation Rate

CCID Consulting, BuddeComm

16.4%

27.9%

38.5%

48.8%

58.7%

66.8% 74.6%

78.1% 80.9%

2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

Cable TV Digitisation



VI. Main Players



Highlights

Source:

China Mobile Limited

Financial Performance

Other Financial Indicators

China Mobile was founded in 1997. It is the largest telecom

company in the world in terms of consumer base and is

listed on both NYSE and the Hong Kong Stock Exchange.

The company is majority owned by the Chinese

government.

China Mobile’s subsidiaries include China Mobile

Communication (BVI) Limited, China Mobile

Communication Co., Ltd. (CMC) and Guangdong Mobile.

The company offers telecommunication services in all

administrative divisions of China. It is the largest telecom

operator in the world by number of subscribers and was

ranked 4th on Fortune China’s Top 500 Companies list in

2013, losing one place compared to 2012. China Mobile

also topped the list for best Chinese brand in 2013.

In late 2013, China Mobile announced plans to build over

500,000 4G base stations in 340 cities across the country

before the end of 2014. This would make China's 4G

network the largest in the world.

After a lengthy negotiation process, in the end of 2013

China Mobile signed a contract with US smartphone

manufacturer Apple Co. which is to supply the Chinese

company with its globally popular iPhone.

Corporate Data

412 452

485 528

560

217 229 239 251 273

113 115 120 126 129

2008 2009 2010 2011 2012

Revenues, RMB bn EBITDA, bn Net profit, RMB bn

2008 2009 2010 2011 2012

Total Assets, RMB bn 658.4 751.4 861.9 952.6 1,052.1

Total Liabilities, RMB bn 217.8 243.7 284.5 302.1 326.8

Total Stockholder Equity, RMB bn 440.0 506.7 576.2 649.1 723.4

Cost of Revenue, RMB bn 24.9 24.9 25.8 28.7 35.0

Operating Expenses, RMB bn 269.4 305.1 334.5 376.7 409.9

Earnings per Share 5.62 5.74 5.96 6.27 6.43



Source:

China Mobile Limited (cont’d)

Operating Revenue Distribution Expenses (RMB mn)

Corporate Data

125,364 137,872

96,830

104,906

28,672

31,256

97,113

100,848

23,533

25,140

5,188

9,909

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2011 2012

Leased Lines

Interconnection

Depreciation

Personnel

Selling Expenses

Other OperatingExpenses

364,189 368,025

139,330

166,348

24,480

26,040

0

100,000

200,000

300,000

400,000

500,000

600,000

2011 2012

OtherOperatingRevenue

DataServiceRevenue

VoiceServiceRevenues



Source:

China Mobile Limited (cont’d)

Key Operating Data

Corporate Data

2011 2012

Customer base, mn 649.6 710.3

Net additional customers, mn 65.6 60.7

3G customer base, mn 51.2 87.9

Net additional 3G customers, mn 30.5 36.7

Total voice usage, minutes bn 3,887.20 4,192.30

Average minutes of usage per user per month (MOU), min/user/month 525 512

Average revenue per user per month (ARPU), RMB/user/month 71 68

SMS usage, messages bn 736.1 744.5

Wireless data traffic, Mb bn 361.4 1,039.20



Highlights

Source:

China Telecom Corporation Limited



China Telecom was founded in 2002 as a part of the

restructuring of China Telecom Group. It is the newest

telecom operator on the Chinese market and is currently

the third largest, after China Mobile and China Unicom.

China Telecom is majority-owned by the Chinese

government with company shares trading on the Hong

Kong and New York stock exchanges.

The company's operations span across a number of

business divisions: Internet, wireline voice, mobile voice,

value-added services, integrated information application

services, managed data and leased line and upfront

connection fees.

In October 2013, China Telecom launched a major project

for the construction of a cloud computing centre in the

Guizhou province in Southwestern China. The China

Telecom Cloud Computing Guizhou Information Park, with

an investment value of USD 1.4bn, is to cover an area of

33.3 hectares and to become operational by the end of

2014.

Also on the cloud services front, in November the company

signed a major deal with SAP to extend their partnership in

the segment thus making it possible for China Telecom to

provide a large range of SAP’s related services directly to

customers in China.

China Telecom’s plans for 2014 include the launching of

60,000 4G base stations.

Corporate Data

2008 2009 2010 2011 2012

Total Assets, RMB bn 440.3 426.5 420.6 419.2 545.1



Operating Expenses, RMB bn 178.6 179.0 187.9 168.0 195.9


187 209 220

245

283

59 76 76 75 71

1 14 16 17 15

2008 2009 2010 2011 2012

Revenues, RMB bn EBITDA, bn Net income, RMB bn



Source:

China Telecom Corporation Limited (cont’d)

Revenues Distribution, RMB bn Expenses (RMB bn)

Corporate Data

49.8 43.3

38.6 49.2

75.0

87.7

25.6

31.1 20.5

23.2 14.3

15.7 21.3

32.9

0

50

100

150

200

250

300

2011 2012

Others

Managed data andleased line

Integratedinformationapplication services

Value-addedservices

Internet

Mobile voice

Wireline voice

51.2 49.7

52.9 66.0

48.7

63.1

39.2

42.8 28.9

40.3

0

50

100

150

200

250

300

2011 2012

Other operatingexpenses

Personnelexpenses

Selling, generaland administrativeexpenses

Networkoperations andsupport expenses

Depreciation andamortisation



Source:

China Telecom Corporation Limited (cont’d)

Key Operating Data

Corporate Data

2011 2012

Mobile subscribers, mn 126.5 160.6

3G subscribers, mn 36.3 69.1

Fixed-line broadband subscribers, mn 76.8 90.1

Access lines in service, mn 169.6 163

Mobile voice usage, minutes mn 407,765 509,229

Mobile SMS usage, mn messages 49,941 55,789

Mobile Colour Ring Tone subscribers, mn 75.4 92.2

Wireline local voice usage, mn pulses 206,371 172,175

Fixed-line caller ID service subscribers, mn 115.6 109.9



Highlights

Source:

China United Network Communications Limited



China United Network Communications Limited

(China Unicom) was founded in 1994 and has since

gone through a series of transformations, the last of

which saw it merging with China Netcom in 2008 in

the biggest merger in history for the country.

Since acquiring a 3G license in 2009, China Unicom

has been the most aggressive in the segment, rapidly

adding new users at the expense of profitability. For

each of the three years between 2010 and 2012,

China Unicom has consistently outperformed the

industry in terms of business revenue growth.

The company plans to invest some RMB 10bn on 4G

launches in 2014, over four times less than its major

rival China Mobile. Most of funds are to be invested in

W-CDMA and HSDPA upgrades. Although lagging

behind China Mobile in 4G investments, China

Unicom is seen as well-positioned in the 3G segment

where its service speed tops that of any competitor

with network speeds comparable to 4G.

Corporate Data

2008 2009 2010 2011 2012

Total Assets, RMB bn 380.4 417.0 441.3 456.2 516.1



Total Costs & Expenses, RMB bn 156.4 141.9 166.8 203.3 239.4

Gross Profit, RMB bn 132.3 128.7 119.6 150.0 150.7

Total Operating Expenses, RMB bn 112.2 117.7 114.4 144.6 139.1


160 154 171

209

249

58 61 61 65 74

30 10 4 4 7

2008 2009 2010 2011 2012

Revenues, RMB bn EBITDA, bn Net income, RMB bn



Source:

China United Network Communications Limited (cont’d)

Service Revenues Distribution, RMB bn

Corporate Data

32.7

59.8

70.6

66.2

35.2

39.4

46.4

43.8

0

50

100

150

200

250

2011 2012

Other Fixed-line Services

BroadbandService

Other MobileServices

3G services

8.8 8.9

31.2 29.1

15.8 15.5

14.3 13.7

15.5 16.7

3.1 2.9

7.9 8.6

0

20

40

60

80

100

120

2011 2012

Others

3G terminalsubsidy cost

Selling andmarketingexpenses

Employeebenefitexpenses

Networks,operationsand supportexpensesDepreciationandamortisation



Source:

China United Network Communications Limited (cont’d)

Key Operating Data Staff Distribution

Corporate Data

2011 2012

Mobile Subscribers mn 199.66 239.312

Mobile ARPU, RMB 47.3 47.9

3G Subscribers mn 40.0 76.5

3G ARPU RMB 110 86.1

3G Total Voice Usage (billion minutes) 169.5 313.1

3G Total Data Traffic, MB bn 79.6 155.1

2G Subscribers mn 159.6 162.9

2G ARPU, RMB 37.4 34.2

2G Total Voice Usage, Minutes bn 484.8 475.7

Fixed-line Broadband Subscribers mn 55.7 63.9

Fixed-line Broadband ARPU, RMB 56.4 54.4

Fixed-line Local Access Subscribers mn 92.9 92.0

Fixed-line Local Access ARPU, RMB 25.7 22.6

Sales and Customer

Service 29.0%

Product and Marketing

8.4%

Construction and

Maintenance 37.1%

Support 12.2%

Management 10.8%

Others 2.5%



VII. Regional Distribution



Source:

Appendix: ICT Sector Regional Distribution

ICT Sector Regional Distribution


North China

Number of mobile subscribers (2013):

165 mn (13.4% of total)

Internet subscribers (2013)

86.6 mn (14% of total)

Northeast China


99.8 mn (8.1% of total)


51.3 mn (8.3% of total)

East China


376.2 mn (30.6% of total)


194.4 mn (31.5% of total)

South Central China


350.4 mn (28.5% of total)


173.6 mn (28.1% of total)

Southwest China


149.9 mn (12.2% of total)


69.2 mn (11.2% of total)

Northwest China


87.9 mn (7.2% of total)

Internet subscribers (2013):

42.3 mn (6.9% of total)



Contact:

Corporate Headquarters

Nestor House

Playhouse Yard

London EC4V 5EX

UK

Voice: +44 207 779 8471

Fax: +44 207 779 8224

Americas Headquarters

225 Park Avenue South

New York, New York 10003

US

Voice: +1 212 610 2900

Fax: +1 212 610 2950

Asia Headquarters

Eucharistic Congress Bldg. No.

III

4th Floor, 5 Convent Street

Mumbai 400 001

India

Voice: +91 22 22881123

Fax: +91 22 22881137

Disclaimer:

The material is based on sources which we believe are reliable, but no warranty, either expressed or implied, is provided in relation to the accuracy or completeness

of the information. The views expressed are our best judgment as of the date of issue and are subject to change without notice. EMIS and Euromoney Institutional

Investor PLC take no responsibility for decisions made on the basis of these opinions.

Any redistribution of this information is strictly prohibited. Copyright © 2014 EMIS, all rights reserved. A Euromoney Institutional Investor company.

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china - emis · established solid positions on the market. china unicom and china telecom are...

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