JPMorgan downplayed the long-term positive impact of China Mobile’s (NYSE:CHL) newly acquired 4G services and its recently signed deal with Apple (NASDAQ:AAPL) in a note to investors, Barron’s reports. JPMorgan cautioned that China Mobile’s 4G network will only boost its “short-term sentiments” at the expense of China’s two other major carriers, China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA).
“4G is poised to lift the data returns for China Mobile off the low base of 3G,” noted JPMorgan. However, the firm believes that the carrier still makes far too much of its profit from voice rather than data for the 4G service to have much of an immediate positive impact.
According to JPMorgan, via Barron’s, “China Mobile’s profit can not take off until its voice revenue drops below 50 percent of the company’s total revenue.” Barron’s said China Mobile currently derives 70 percent of its revenue from voice. Although China Mobile will now have the advantage of being able to offer its subscribers Apple’s popular iPhone 5C and iPhone 5S devices, JPMorgan thinks the transition from a primarily voice-based telecom to a data-based telecom will be fraught with difficulties.
The biggest beneficiary of China’s new 4G services may actually be China Unicom because “it is best positioned in voice-to-data migration and has a capex advantage,” according to JPMorgan’s note. On the other hand, China Telecom may have the most difficulties transitioning to 4G because of “higher competition and capex risks with 4G.”
As previously reported by The Wall Street Journal, Apple recently signed a distribution deal with China Mobile, the world’s largest carrier with more than 750 million subscribers. The news of China Mobile’s deal with Apple came on the heels of an announcement from China’s Ministry of Industry and Information Technology that it had issued 4G operating licenses to China’s three largest carriers. The Journal said the TD-LTE versions of Apple’s iPhone 5S and iPhone 5C have already been licensed by China’s Telecom Equipment Certification Center. TD-LTE is the 4G standard used by China Mobile.
Although JPMorgan predicted that China Mobile’s newly acquired 4G services and iPhone distribution deal will not immediately improve the carrier’s overall profits, the moves should still significantly boost Apple’s presence in China. China has more than 1 billion mobile phone users, and market research firm Trefis found that China Mobile may add as many as 20 million iPhone sales in 2014, according to the Journal. The addition of 4G services at China Unicom and China Telecom will also likely boost Apple’s iPhone sales through those carriers.
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