In the mobile world, Internet speeds reign supreme. The faster and more reliable the network, the better the chance of wooing customers. For China Mobile (NYSE:CHL), a company that already has 715 million subscribers, a faster network means the chance for not just more customers, but an iPhone as well.
Spending at the speed of light
In an annual report released yesterday, China Mobile announced it will spend about $6.7 billion this year building a new 4G network. The company will build a TD-LTE 4G network that will reach 500 million users across 100 cities in China. Just to put that number in perspective, more of China Mobile's customers will have 4G coverage than there are people in the entire United States.
That may seem like a ridiculous comparison to make, but it puts the network potential for China Mobile in perspective. The new 4G network is significant for China Mobile because the company currently has a smaller percentage of its customers on its 3G network than competitors China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU).
Just a few days ago, China Unicom said it would build a 4G network once Chinese officials issued licenses. But those licenses won't be granted until later this year, which gives China Mobile a leg up over China Unicom in the pursuit of 4G. Many analysts think China Unicom is the least ready of the big three China telecoms to build a 4G network.
Reports that China Telecom was testing 4G networks surfaced back in November, which could prove problematic for China Mobile if both companies launch their 4G around the same time. China Telecom is said to be using the global 4G standard of FDD-LTE, as opposed to China Mobile's TD-LTE, which may make it easier on handset makers who already sell FDD-LTE phones. China Telecom is one of China Mobile's toughest competitors, and the two will battle it out to be the best 4G network over the next few years.
Competing with Chinese rivals for faster speeds is one way China Mobile is trying to stay on top, but the company also needs a 4G network to lure handset manufacturers like Apple (NASDAQ:AAPL) onto its networks.
You can (finally) have your precious iPhone
Tech investors have probably had their fill of stories on why China Mobile doesn't carry the iPhone, when the company will get it, how the talks between Apple and China Mobile are going, etc. But this move to 4G is a significant step in making the iPhone officially available on China Mobile's network.
Over 10 million people already unofficially use their iPhones on the Chinese company's network, albeit around 2G speeds, but this network expansion will bring an official China Mobile iPhone that much closer to reality. Although nothing official has been announced, a China Mobile iPhone could significantly bring up Apple's smartphone market share in the country. As it stands right now, Apple is third place, behind Samsung and Lenovo.
Apple grew sales in China from $4.08 billion in 2011 to $6.83 billion last year -- a 67% increase. The company needs a fresh boost to fight Samsung, and bringing the iPhone on China Mobile's new 4G network may be just the thing. With Chinese telecoms starting to focus on 4G networks, Apple will have more of chance to sell its phone in the country. Although China Telecom already has the iPhone, 4G coverage could help spur new phone purchases, including Apple's latest handset.
Two steps forward, one step back
Once China Mobile launches the 4G network, it will likely subsidize new phones to draw in customers. The company said that subsidies will increase by 13% this year compared to last year. China Telecom increased subsidies early last year, which cut into its profits, and investors can expect some of the same with China Mobile.
The company is investing a total of $30 billion in its network infrastructure this year. Add to that the possible subsidies for premium 4G handsets like the iPhone, which may force China Mobile to sacrifice profits in the short term for long-term gains. Investors should see China Mobile's 4G expansion as a necessary expense, and a positive sign of the company's long-term future.