China Mobile (941. HK): Granted FDD License
On April 3, China Mobile announced that the Ministry of Industry & Information Technology ( MIIT ) has granted it a basic telecom service permit for LTE FDD. CM plans to vigorously promote the development of mobile IoT and industrial Internet on a nationwide basis, actively initiate the scale application for a TDD/FDD convergence network and enhance network quality in rural areas.
FDD license gives CM more network construction options. Although CM did not reveal its FDD network’s specific spectrum ( we believe 900MHz ), or if it also received a permit for 2G refarming, we can conclude:
1) CM will establish a nationwide FDD network to accelerate the development of its IoT business ( NB - IoT only allows FDD networks );
2) CM will utilize FDD to enhance 4G network coverage in rural areas, implying it won’t be adopted in urban areas.
The FDD license will improve CM’s networks over the long run, as:
1) CM will quickly build nationwide NB-IoT coverage to compete with CU and CT, raising competitiveness in the IoT market and ramping up its IoT connections. NB-IoT is more advantageous in signal intensity & network load than its previous 2G/3G network;
2) CM will continue to enhance its 4G network quality; we believe it will establish a TDD/FDD convergence network in rural areas to improve its network speed & stability, facilitating the capability to offer VoLTE services.
We believe CM will rapidly implement FDD network construction & complete its establishment before year-end. Compared to CT’s nationwide 800Mhz refarming (only using 300k base stations), we believe CM will likely use fewer base stations; thus, its Capex related to FDD network construction should be very limited and we maintain our previous forecast of Rmb166bn ( -6% YoY ).
Although the new license is a long-term positive, CM’s results will mainly be influenced by tariff reduction policies in the short run, which we believe will put more pressure on its ARPU and growth. We maintain our HOLD rating and HK$70 target price, 2.5x 2018e EV/EBITDA (3.8% dividend yield).
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