China Mobile (HK) plans US$7.25b 3G investment
(The Standard)
Updated: 2004-08-20 16:09

China Mobile (Hong Kong), the world's largest mobile phone carrier by subscribers, is likely to invest 60 billion yuan (US$7.25 billion) in the first two to three years to develop a third-generation (3G) network on the mainland.

The estimate, confirmed by China Mobile officials, was revealed in a Merrill Lynch report on Thursday. The investment bank said capital expenditure (capex) estimates were based on a US$200 per subscriber investment.

This implied a three-year target of 36 million 3G subscribers, or 22 per cent of China Mobile's current estimated 160 million subscribers, the report said. Its total subscribers stood at 158.64 million at the end of June.

"Note that the company agrees that 2G capex would come down as 3G goes up," Merrill Lynch first vice-president Alistair Scott said, adding that the 60-billion-yuan investment would not add to the company's capex forecast of US$4.3 billion for next year.

China Mobile's chairman Wang Xiaochu said on Wednesday, on the sidelines of the company's first-half results, that the initial 3G roll-out would be limited to major cities along the mainland's eastern coast rather than a nationwide launch.

Merrill Lynch said the estimation remained subject to uncertainties such as the timing of the 3G network roll-out, and other network sharing obligations, which would be decided by the regulator.

However, "60 billion yuan is easily manageable with China Mobile's balance sheet and cash flow ... and is less than (its) two years free cash flow, so 3G spend may require no material increase in net gearing", the report said.

Since such capital spending was considered immaterial to China Mobile, this made the lack of a dividend increase in its just reported first-half results "appear even more conservative", Merrill Lynch said.

Other analysts have also said the mobile giant's 21 per cent dividend payout ratio for the first half is disappointing, given its zero debt position and some 5.98 billion yuan net cash.

This was one of the reasons given by CLSA on Thursday as it downgraded the stock to "underperform", from "outperform". It also cut its target price on the shares to HK$24.5 (US$3.14) from HK$28.5.

China Mobile said on Wednesday its first-half profit rose 7.8 per cent on year to 18.83 billion yuan.

Smaller rival China Unicom added 1.724 million users in July, taking its total subscriber base to 104.24 million, the company said on Thursday.

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