Chinese cellular market no longer a draw for western investors

18 May 2004

The Chinese mobile market may be the largest in the world in terms of subscribers and still growing, but it no longer represents a viable option for the investment community. According to Bloomberg, some of the world’s largest cellcos are wary of upping their investments in the country due to the falling profitability of the nation’s wireless carriers and the high price of their shares. One overseas operator to rule out further investment in the Chinese market recently is Vodafone, which at the height of the telecoms boom in 2000 paid USD2.5 billion for 2.2% of leading service provider China Mobile (Hong Kong), taking its stake to 3.3%. Last week Vodafone’s chief executive Arum Sarin said there was little or no chance of his company increasing its stake ‘in the medium-term’.

China Mobile surpassed Vodafone as the world’s biggest mobile operator by subscribers in 2002.

At today’s prices, a 35% stake in the company would cost in the region USD17 billion – a big financial outlay for companies such as Vodafone which have spent billions of dollars in recent years buying third-generation mobile licences around the world. China Mobile recorded revenues of USD19 billion in 2003, bettered only by Vodafone and Japan’s NTT DoCoMo. The Chinese cellco’s profit margin fell from 60% to 58.2%, whilst net profit rose by 9% to USD4.3 billion. Net profit at China’s other operator, Unicom, fell by 8% to USD510 million in 2003, its first decline since going public in 2000. Another stumbling block for possible foreign investors is the high level of government intervention in the sector. The state owns majority stakes in both wireless operators and has said that any new mobile licences which it decides to make available will be offered first to the country’s principal fixed line operators, China Telecom Corp and China Netcom, both of which are also majority owned by the state.