As China's Ministry of Industry and Information Technology (MIIT) issued 4G licenses for China Mobile, China Unicom and China Telecom this week, analysts believed Asian telecom operators still have rooms for growth although they have to grapple with a number of challenges such as competitions and pricing structure amid network shift.
While issuing licenses, MIIT also called on the three wireless carriers sharing the 4G network to avoid repetitive construction and waste on resources. Indeed, the statement for the three Chinese wireless carriers highlighted the common concerns among investors and analysts about the operating outlook of Asian telecom operators in the face of 4G transition and asymmetrical regulations.
Nomura Research said "We find competition and high penetration levels have limited some of the upside (for Asian telecom operators). This is particularly true as telecom operators are still transitioning from voice to data, which is not an easy one."
The Japanese research house observed that despite rising incomes in most parts of Asia over the past 3 years, traditional telecom operators in the region had not been able to capture higher share of discretionary spend. Most of them are trying to tilt this back in their favor through data re-pricing initiatives, but so far with limited success.
According to Nomura, total telecom revenue as a percentage of Gross Domestic Product (GDP) in Asia was on average 2.8 percent in 2012 and this has been flat for the past three years. Within this, South Korea, Japan and Thailand are the only ones that have seen an increase during the period.
This is mainly attributed to their faster total revenue growth in the telecom sector versus their GDP growth rates. But for the rest of Asia, they have all seen a decline, largely due to a combination of dismal growth rates, which are also impacted by competition and other issues.
As HSBC Global Research sees it, the key sector level challenge for Asian telecoms operators is to monetize the rapid shift in traffic and revenues to data. A shift towards more flexible and innovative pricing is the key to driving higher network utilization rates, and in this aspect, HSBC is optimistic on the developed Asian markets of South Korea, Japan, and Thailand. In contrast, the research house is cautious on China's Hong Kong, India, and most of Southeast Asian countries given their competitive market structure and regulatory obstacles.
HSBC said while China is the largest smart-phone market in the world today, the current de-facto restrictions on flat rate data pricing have made the Chinese mobile carries hard to stimulate data growth, and the government is likely to continue to push for lower voice pricing.
Thus, the two important factors that dictate the levels of Asian telecom returns are regulation and market structure. Without a rational and balanced regulatory framework, telecoms markets devolve into excess competition due to too many licensees, and under-investment due to the difficulty of earning a return on additional capital expenditure.
HSBC suggested for the Asian telecom operators to dynamically and effectively adjust data pricing to load data networks for 4G transition, they should improve their legal, technical, and organizational skills which may require them to upgrade their hardware and software systems, and their sales and customer care teams.
Source: Xinhua
