Ask Jefferies’ Cynthia Meng which telecom stocks she finds appealing and she points to China Unicom and China Telecom.
This year’s top-ranked telecommunications analyst argues that both are gaining ground on current operator of choice China Mobile, thanks to a combination of low prices, attractive products and dual mode handsets.
“The overarching theme is low-end smartphone commoditisation, the prices are very low and that’s benefitting the Chinese telecom operators who can sit back and subsidise less. We think that there are three main telecos in the space. China Telecom and Unicom are the challengers in the industry and they are gaining market share against the incumbent, China Mobile,” she says.
The weapon of choice among the challengers is cheaper and better looking handsets. The low-end and mid-end commoditisation of smartphones is set to continue next year, she said, but the development that will have the biggest impact on the industry is the growing popularity of dual mode handsets.
“That means in one handset you can put in two sim cards, two numbers. Dual mode means one is GSM, that’s China Mobile, the other one is a competitor. These handsets are already popular in China and it the telecom operators and vendors are promoting them heavily at a very reasonable price,” she says.
In China, mobile number portability does not exist, which means that users cannot change from one operator to another and keep the same number. Dual mode handsets provide a way of getting around this.
“You keep your number, but your monthly fee to the operator will be split between China Mobile and either China Unicom or China Telecom,” says Meng. “That means that China Mobile will lose out, so that’s a very big trend. I don’t think the market is very much looking at it, but we’ve been talking about it for about two months.”