China telecom firms take time to profit with 4G

Chinese mobile subscribers are frugal, which means any 4G package must be attractive enough to lure users away from the slower data plans they currently use, a factor likely to eat into profit margins. [Photo / icpress.cn]

Faster isn't necessarily better for China's telecom carriers as they prepare to roll out high-speed 4G mobile phone networks at the expense of their profitability for years to come.

China Mobile Ltd, which has the most subscribers in the world, is investing billions of dollars to upgrade its infrastructure so clients can enjoy speedier Internet and data access once the government awards 4G telecom licences before the end of the year.

Its rivals China Unicom Hong Kong Ltd and China Telecom Corp Ltd are being forced to follow suit, especially as China Mobile is in talks with Apple Inc to carry its latest smartphones, which require 4G to function at their best.

While the pressure is strong to keep up with international standards, China's mobile carriers will, like their peers in other emerging markets, struggle to recoup their investments.

"In a best case scenario, it would be no less than four to five years to turn profitable," said Juan Jose Rio of Delta Partners, a global telecoms, media and technology advisory and investment firm based in Dubai.

Chinese mobile subscribers are frugal, which means any 4G package must be attractive enough to lure users away from the slower data plans they currently use, a factor likely to eat into profit margins.

The upgraded networks also enable subscribers to better utilize technology that makes classic revenue-generators like SMSes and calls obsolete, further eroding revenues.

"Chinese carriers may price contracts at a level that's profitable straight away but it probably won't go down very well with Chinese consumers because of the higher price point for plan," said Teck-Zhung Wong, a Singapore-based analyst at information technology consultancy IDC.

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