Key Takeaways From China Telecom’s 2018 Results

China Telecom (NYSE:CHA), the smallest of the three Chinese wireless carriers, published its Q4 and full year 2018 results on Tuesday. The company’s net income for the year grew by about 14% to about RMB 21.21 billion ($3.16 billion) driven by growing wireless and wireline broadband subscriber base as well as lower equipment related costs. Below, we take a look at some of the key trends that drove the company’s results over the year.

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Wireless And Wireline Broadband Business Updates

China Telecom posted the strongest subscriber growth among the three Chinese wireless players, adding a total of 53 million subscribers over the year, taking its total wireless subscriber base to 303 million. This amounts to 43.6% of the net adds in the Chinese wireless market.  The growth is being driven by the company’s move to offer larger data packs for heavy data users as well as its improving coverage (it has a total of 1.38 million base stations, an increase of about 210k year-over-year). The company saw its 4G subscriber mix rise to 80%, up from 72% a year ago, with 4G data consumption per user more than doubling to 5.5 GB per month. However, like its peers, China Telecom saw its ARPU contract, falling by around 8% year-over-year to RMB 50.5 (~$7.50) due to the government’s move to slash long-distance and roaming charges, while limiting data pricing.

China Telecom’s wireline broadband business added a total of 12.3 million subscribers over the year, taking its total subscriber base to 145.8 million. The company increased the mix of FTTH users to 96% over the year. However, broadband ARPU trended lower by about 11% to RMB 44.3 (~$6.60), amid higher competition from rival China Mobile, which has outperformed the industry in terms of net adds.

Capital Expenditures

The company is projecting capital expenditures of RMB 78 billion ($11.6 billion) over 2019, marking an increase from the RMB 75 billion it spent over 2018. While the company’s 4G related capital expenditures will decline by about 5% year over year, it still expects to improve its 4G coverage in high data traffic areas. 4G capacity does not appear to be an issue in the interim, as the company’s 4G network utilization only stands at about 39%. The company has outlined about RMB 9 billion of its 2019 CapEx budget for expanding its 5G-related trials. Over 2018, China Telecom was carrying out outdoor 5G trials in 17 cities, with a total of over 1,000 base stations.

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