Apple Inc. (AAPL) Boosts China Telecom, Now What About China Mobile?

Apple Inc. (AAPL) Boosts China Telecom, Now What About China Mobile?
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Apple Inc. (NASDAQ:AAPL) has reportedly been in talks to land a deal with China Telecom, and now there is yet another reason why a deal may be more likely to happen. We’ve just seen improved earnings results from China Telecom— one of the two Chinese carriers which already signed deals with Apple.

Apple Inc. (AAPL) Boosts China Telecom, Now What About China Mobile?

China Telecom boosted by Apple

On Wednesday China Telecom released its latest quarterly results. The company is the third biggest mobile carrier in China according to the number of subscribers. Wednesday’s results show its second quarterly profit in a row, and those results likely received a big boost from the deal signed by Apple Inc. (NASDAQ:AAPL). China Telecom just signed on with Apple to support the iPhone in February.

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The carrier shipped about 30 million smartphones during the first half of the year—an 83 percent increase year over year. The carrier’s 3G data usage also surged to 51 percent of its user base year over year during the second quarter, and that was driven largely by the addition of the iPhone.

China Unicom also showed significant gains in 3G data usage, although it does not disclose smartphone shipment numbers. At the end of July, 39.1 percent of its subscribers were 3G subscribers.

China’s growing mobile market

Stifel analysts examined the latest data from Gartner, which shows trends unfolding in China’s mobile market. As of the end of July, China had 1.187 billion mobile subscribers, with 341.3 million of them being 3G subscribers. That’s about a 29 percent penetration.

China Mobile alone had about 745 million mobile subscribers at the end of July. That’s compared to 740.2 million at the end of June and 710 million at the end of last year. At the end of July, China Mobile had 147.1 million 3G subscribers.

What China Mobile means to Apple

China Mobile is largely seen as a potential goldmine for Apple because it is the biggest mobile carrier in the world’s largest mobile market. The low-cost iPhone and the rollout of 4G licenses in China could both make supporting Apple’s devices look more attractive to China Mobile. And now the company may become even more motivated upon seeing the results China Telecom received by adding the iPhone to its lineup.

Stifel analysts Aaron C. Rakers, Sanjiv R. Wadhwani, Joseph Quatrochi, Andrew Shinn and William C. Peterson estimate that if China Mobile begins supporting Apple Inc. (NASDAQ:AAPL)’s iPhone, annualized earnings per share could go up between $4 and $8 per share over the 12 months after the launch. They note that the carrier had about 57 percent of the total 3G subscriber additions in July.

Apple and China’s 4G build-out

It is also important for Apple Inc. (NASDAQ:AAPL) to sign a deal with China Mobile because rollout of 4G network will begin soon in China. China Mobile is building out its 4G TD-LTE network and has 25 smartphones on trial and more than 100 others in development. Chinese officials could begin handing out licenses for the 4G TD-LTE networks as early as October.

Stifel analysts note that China Telecom and China Unicom, however, tend to prefer 4G FDD-LTE because it is compatible with their current 3G network. This is an important distinction when it comes to weighing the importance of China Mobile to Apple Inc. (NASDAQ:AAPL) because the FDD-LTE licenses might not be awarded for another six to 12 months.

They continue to rate Apple Inc. (NASDAQ:AAPL) as a Buy and have a $540 per share target price on the stock.

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