China telcos:Managers move,issues stay the same

China telcos confirm management moves. Wang Xiaochuwill move from China Telecom to chair China Unicom,while Chang Xiaobing will move from China Unicom toChina Telecom. China Mobile also announced that Ministryof Industry and Information Technology vice minister ShangBing will replace retired Chairman Xi Guohua.

    The form of reform, not the substance. We struggle to seehow the management re-shuffle advances reform in theChina telco sector. Unicom and Telecom look set to facegreater competition in the broadband market, whileremaining structurally weaker in wireless. This isparticularly the case for China Unicom – which announcedworsening trends and higher investment at half-year resultson Friday 21 August.

    Continue to see risk of further asymmetric regulation atChina Mobile. A State Council directive in May called forhigher investment in telco infrastructure and lower prices.Complying with this requirement looks increasinglychallenging for China Unicom, which fell behind its peers in1H15. Given Unicom’s limited ability to manoeuvre, we seerisk of further asymmetric regulation at China Mobile toreduce imbalance in the sector.

    No changes to ratings or estimates – retain Reduce ratingon China Mobile, and Hold ratings on China Telecom andUnicom. While 1H15 should be the bottom for China Unicom,we expect it to continue to struggle to match its peers in 3G/4Grollout – with additional competition in fixed broadband fromChina Mobile a further risk. We believe there is a fundamentalgap between the requirement of the majority shareholder (i.e.the government) for higher investment and lower prices, andthe interests of minority shareholders.