Chinese operators form partnership to reduce expenditure

China’s second and third-placed operators are collaborating on the construction of an optical network and 4G base stations in an attempt to reduce their annual capex by up to CNY3 billion ($451 million).

Earlier this year, China Unicom and China Telecom announced a programme of cooperation that was widely interpreted as an attempt to strengthen their ability to compete with market leader China Mobile. In their interim reports, the operators noted that they would jointly build 60,000 4G base stations and deploy 14,500km of optical fibre.

China Telecom COO Yang Xiaowei has stated that the two firms are “cooperating for profits, not to rival China Mobile”. With the costs saved via the joint build-out, China Telecom reckons it can reduce its capex by CNY3 billion and its opex by CNY300 million this year. Meanwhile, China Unicom estimates a total saving of CNY3.3 billion on both capex and opex.

Market leader China Mobile has a 62% share of the country’s total mobile connections, but also leads the way in 4G with a massive 72% share of 4G subscribers in China – a total of 449 million at the end of H1. The two smaller operators are looking to increase their competitiveness in the 4G space – China Unicom has 78 million 4G subscribers while China Telecom has 96 million.

All three operators lease towers from tower firm China Tower, having signed over large swathes of their tower portfolios to the state-run company last year. China Mobile leases 1 million towers from the state firm, constituting 30% of its towers, while China Telecom leases 550,000 – 55% of its total.

In July, the parties reached an agreement on rental rates as well as pricing for infrastructure assets. Since all three operators have major shareholdings in China Tower, they will be looking to ensure the firm’s profitability. While tower usage fees are currently high due to fewer instances of sharing, once the ratio increases, leasing rates will likely fall. 

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