Analysis on Telecommunication Sector

The telecommunications industry can be broken down into 2 main components – Mobile and Fixed Lines. However, several companies are able to provide broadband services via the fixed line.

In Singapore, all companies provide fixed line, mobile line and broadband services, with Singtel using the ADSL method of accessing the internet while Starhub uses the cable point for the television. M1 taps onto either the Singtel or Starhub to provide internet to its users. Starhub and Singtel have another source of income via Starhub Cable and MioTV respectively.

In China, China Mobile is the market leader in the mobile line sector, with China Unicom second and China Telecom third. In the landline industry, China Telecom is the market leader, followed by China Netcom and China Mobile. China Netcom was acquired by China Unicom, in a 2008 deal which saw China Telecom taking up China Unicom’s CDMA technology, giving it a foray into the mobile industry.

Statistics

In Singapore,
Fixed Line Penetration Rate – 96% (total of 1,117,000 households, up from 1,104,500 in 2004)
Mobile Penetration Rate – 135.3% (total of 6.7million, up from 3.7million in 2004)
Internet Penetration Rate – 58.6% (total of 2.7million)

In China,
Fixed Line Penetration Rate – 24.4% (total of 318million, a decrease of 22.07million in 2008)
Mobile Phone Penetration – 54.3% (total of 739million, an increase of 97.32million from 2008)
Internet Penetration Rate – 25.3% (total of 338million, up from 94million in 2004)

Another noteworthy point are that in China, the fixed line penetration rate has dropped over the past year.

Singapore or China?

In Singapore, the opportunity for companies in the telecommunications industry is limited. With the mobile penetration rate capped at a maximum of 200% (it is not foreseeable to have three phones unless of course you need a phone for wife, work and mistress), the growth opportunities are limited. Furthermore, as more people move towards mobile lines, the need for land lines is greatly reduced. However, all three telcos provide high dividends, and is a good defensive stock to complement a portfolio.

In China, the opportunity in the telecommunications industry is large. Mobile penetration is ever increasing as well as internet penetration, giving rise to a lot of opportunities. Likewise, the need for landlines is reduced as people move to mobile lines. However, with more companies moving into China, the demand for land lines is still present.

For me, I invested in China Telecom on HKex. Personally, I believe that China Telecom or China Unicom would be a good choice for investment, but I went with China Telecom. The reasonings of why I went with China Telecom will be covered in the next post.