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China Telecom Set for 3G Revolution

China Telecom has also been helped by the fact that China Mobile currently runs its 3G network on a homegrown proprietary TD-SCDMA standard that is not compatible with many smartphones.

That may soon end, however, as Qualcomm recently launched a wireless chipset that supports the standard, making it likely that many popular smartphones, including the iPhone 4S, could be making their way to the carrier before the year end.

However such a deal has not been officially announced yet and China Telecom will be looking to make the most of its iPhone opportunity before that happens.

Margin Pressures

While the arrival of the iPhone on China Mobile could potentially be a huge blow to China Telecom, it is not banking on the popular smartphone alone to drive 3G adoption. The carrier recently came up with a strategy to sell low-cost 3G smartphones made by ZTE, Huawei and Lenovo that run on its 3G network. Considering that the Chinese market is still in an evolving stage, the demand for cheaper Android smartphones is huge. Moreover, subsidizing these smartphones doesn't put as deep a dent on its margins as an iPhone does.

Driving 3G adoption will serve to drive the ARPU levels of China Telecom further, as has been the case in the developed world. Carriers such as Verizon, AT&T and Sprint in the U.S. have seen rapid growth in mobile data revenues over the past few years, driven by growing demand for 3G-capable smartphones. This has come even as their voice ARPUs declined, a trend that can be seen in the Chinese telecom market as well. China Mobile's voice ARPU levels have declined from above $7.30 levels in 2007 to about $6.60 in 2011, by our estimates.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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