3Q.2011 China Mobile Operator ForecastChina to have 1.3 billion mobile subscriber connections in 2015 with China Mobile taking 61.5% market share

October 2011

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

The operator-wide average subscriber growth (YoY) was 13.3% in 2Q.2011, up from 12.2% in 2Q.2010.

The largest operator, China Mobile, saw its subscriber growth (YoY) decline from 12.4% in 2Q.2010 to 11.3% in 2Q.2011.

China Unicom's subscriber growth (YoY) was 11.7% in 2Q.2011, significantly up from 6.7% in 2Q.2010.

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Chart 1: Subscriber Growth (4Q08 – 2Q11), %

Double-digit subscriber growth continues in China13.3% industry average subscriber growth in 2Q.2011

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

The industry average monthly ARPU in China was US$ 8.70 in 2Q.2011, down -14.6% YoY.

ARPUs are declining at China Mobile and China Telecom.

China Mobile's monthly ARPU fell by -0.8% (YoY) to reach US$ 11.23 in 2Q.2011. China Telecom’s ARPU growth was also negative at -13.0%.

On the other hand, ARPU growth (YoY) at China Unicom increased from 4.5% in 2Q.2010 to 6.1% in 2Q.2011.

Chart 2: ARPU Growth (4Q08 – 2Q11), %

ARPU growth remains negative-14.6% industry average ARPU growth in 2Q.2011

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

The operator-wide average Minute of Use (MOU) per subscriber was 446 minutes per month in 2Q.2011, down -3.5% YoY.

MOU/Sub at China Mobile continues to be higher than MOU/Sub at China Unicom and China Telecom.

China Mobile’s MOU per subscriber stood at 538 minutes in 2Q.2011 compared to 298 minutes at China Unicom and 322 minutes at China Telecom.

Chart 3: MOU/Sub Growth (4Q08 – 2Q11), %

Minutes of Use per Subscriber continue to increaseIndustry average MOU/Sub is 446 minutes per month

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China Mobile China Unicom China Telecom Industry Total

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

7.3% INDUSTRY-AVERAGE EBITDA GROWTH IN 2Q.2011

• The industry average EBITDA growth rate (YoY) in 2Q.2011 was 7.3%, down from 7.6% in 2Q.2010.

• EBITDA growth rate (YoY) at China Mobile was 7.5% in 2Q.2011, down from 8.7% in 2Q.2010.

• China Unicom's EBITDA growth was strong at -6.2% in 2Q.2011, up from -14.8% in 2Q.2010.

Chart 4: EBITDA Growth (4Q08 – 2Q11), %

Positive EBITDA growth at China Mobile in 2Q.2011

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China Mobile China Unicom Industry Total

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

We forecast that the number of total wireless subscriber connections in China will increase from 987 million in the end of 2011 to 1.32 billion in the end of 2015.

Given the latest quarter numbers, our model predicts that China Mobile will have approximately 815 million mobile subscribers in 2015.

In our view, China Mobile will continue to hold a dominant position in the market as the largest mobile operator in China with a 61.5% market share in 2015.

We forecast that, in 2015, China Unicom will have 254.5 million wireless subscribers (19.2% market share) and China Telecom will have 256.6 million subscribers (19.4% market share).

Chart 5: Subscribers by operator (CY09 – CY15F)

So what is IEMR’s Forecast? Total mobile subscriber connections in China to reach 1.32 billion in 2015

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

WE EXPECT THE OPERATOR-WIDE AVERAGE ARPU LEVEL TO STABILIZE OVER THE NEXT TWO YEARS

We expect a decline in the industry average ARPU for the next two years.

Our forecasting model predicts that the industry average ARPU will be approximately RMB 64 per month in 2013.

At the operator level, we expect that China Mobile’s ARPU level will continue to be the highest in China over the next two years.

China Telecom’s monthly ARPU remains below those of China Mobile and China Unicom.

Chart 6: Average Revenue per User (ARPU) per month (CY09 – CY13F), RMB

So what is IEMR’s Forecast?ARPU levels in China to stabilize

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China Mobile China Unicom China Telecom Average

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

China Mobile will be enjoying the highest level of profitability in China’s wireless market during the forecast period.

Our model is predicting that China Mobile’s EBITDA margin (calculated as EBITDA/service revenue) will remain stable at about 46% from 2012 and 2013.

China Unicom’s EBITDA margin will remain lower than that of China Mobile.

China Telecom’s EBITDA margin will be 5.5% in 2013, and we expect that it will continue to be positive over the next several quarters.

Chart 7: EBITDA margins (CY09 – CY13F), %

So what is IEMR’s Forecast? China Mobile to enjoy the highest profitability

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