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CHL's iPhone Hope Banks on 4G Roll Out

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China Mobile Limited (CHL - Free Report) , the largest wireless carrier in the world by subscriber base, is banking on its 4G network deployment to propel growth of Apple Inc.’s (AAPL - Free Report) iPhone. CHL wants to commercially launch its 4G technology by the second half of this year and has also earmarked its 4G investment plan.

CHL already offers iPhone and has more than 10 million iPhone users on its 3G network. However, the company’s biggest flaw is that it offers mobile service based on Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) technology, which is not very well supported by the handset makers including Apple. On the 3G front, CHL did not perform well, where only 13% of its 715 million customers are 3G, while rival China Unicom (Hong Kong) Limited (CHU - Free Report) and China Telecom Corp. Ltd. (CHA - Free Report) have performed better with 33% and 44% 3G penetration, respectively.

Additionally, most of CHL’s customers are prepaid with only a small number being high margin postpaid customers. Based on these weaknesses, the company has reported weak financial report for full year 2012, where profit has increased just 2.7%.

In an attempt to overcome this difficult situation, CHL has already started to deploy TD-LTE (Time Division Long Term Evolution) technology and has already launched commercial LTE service on a trial basis in two cities. The company expects to offer LTE coverage in 100 Chinese cities by the end of this year.

With nearly a billion cell phone users, China Mobile offers a huge smartphone market, which is still being dominated by Android. Apple’s collaboration with CHL will allow the later to narrow the gap on Android.  

China, where 3G network is still being rolled out expects to grant 4G license in the second half of 2013. According to research firm IHS, 4G growth is expected to pick up pace gradually with the maximum growth coming in 2016 and 2017 as 3G will be phased out by then. They expect LTE to dominate the Chinese market, with a customer base of 439.9 million by 2017.

CHL recently declared that it plans to increase its capital expenditure by 49% in 2013, with around $7 billion of the proposed $30 billion investment is expected to be in deployment of TD-LTE network. TD-LTE technology, which supports iPhone will boost the company’s subscriber growth once it is rolled out across the country.

Nevertheless, the company might have to provide substantial handset subsidies and spend heavily on promotional expenses to attract customers, which might impact its bottom line.

Currently, China Mobile Carries a Zacks Rank #3 (Hold).

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