China Telecom to Enter U.S. Wireless Market in 2012

China Telecom (NYSE:CHA) is planning to expand its operations into the US with the sale of wireless services under its own brand, starting next year. According to Bloomberg, the Chinese operator will offer services as a mobile virtual network operator (MVNO) and will target Chinese expats and students, as well as frequent travellers between China and the US. ^[1] A MVNO is a mobile operator that neither owns its own spectrum nor does it have any network infrastructure of its own and has to therefore lease out some other company’s. China Telecom is China’s largest land-line operator and also its third-largest wireless provider behind China Mobile (NYSE:CHL) and China Unicom (NYSE:CHU). After its entry into the U.S., it will also compete with Verizon (NYSE:VZ), AT&T (NYSE:T) and Sprint (NYSE:S) in the wireless market.

This comes close on the heels of an earlier announcement by one of the company’s subsidiaries, China Telecom Europe, that the company is looking to start MVNOs in certain European countries starting from UK and expanding into Germany and France afterwards. ^[2]These developments clearly show the company’s growth ambitions as it tries to diversify outside China into U.S. and Europe.

Our price estimate for China Telecom is $68, which is about 15% over the current market price.

See the full Trefis analysis for China Telecom

Possible impact on the U.S. wireless market dynamics

China Telecom plans on pricing the service competitively and building it off an existing network in the U.S to decrease its time-to-market and attract customers, but declined to comment on the possible wholesale partners for its U.S. foray. However, we believe Sprint and Verizon are the most likely contenders owing to China Telecom’s familiarity with CDMA, the same wireless technology used by Sprint and Verizon for their 3G networks. ^[3]

Sprint has also recently opened up its 4G WiMax network to wholesale customers, thereby allowing third party providers to resell Sprint’s 4G service to their own customers. ^[4] It is possible that China Telecom has its eyes on this 4G network as well, that is actually Clearwire’s but Sprint pays to be able to use the network. Increased usage of its 4G WiMax network could help improve Clearwire’s revenue outlook, thereby making it easier for the company to raise funds for its proposed LTE rollout. (see Sprint Taps Bond Market, May Help Fund Ailing Clearwire)

AT&T may also stand to benefit from this move as the entry of another competitor in the wireless market strengthens its arguments that the acquisition of T-Mobile will not impede competition in any way, as opposed to what Sprint claims in its lawsuit against the deal. (see AT&T Notches a Small Win in Sprint’s Suit Against T-Mobile Deal)

Understand How a Company’s Products Impact its Stock Price at Trefis

1. China Telecom Plans to Offer Wireless Service in U.S. in 2012, Bloomberg, November 9th, 2011 [↩]
2. China Telecom Said to Plan U.K. Mobile Services Before Olympics, Bloomberg, September 3rd, 2011 [↩]
3. Coming to America: China Telecom launching U.S. service, GigaOM, Nov 2011 [↩]
4. Sprint Becomes First U.S. Wireless Carrier to Make 4G Available to Wholesale Customers, Company Website, August 2nd, 2011 [↩]