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China Telecom's 5G service may not cover whole country

Chairman cool to the idea of private investment

China Telecom Chairman and CEO Yang Jie said fifth-generation technology will not necessarily cover the entire country, unlike existing 4G and 3G services. (Photo by Kenji Kawase)

HONG KONG --  Next-generation 5G cellular service is unlikely to be universally offered throughout China when it is rolled out by China Telecom, the chairman and CEO of the company, one of the country's three state-owned carriers, suggested Wednesday.

Yang Jie braved the weather to open an earnings press conference as scheduled on a day when the local bourse was closed by the strongest typhoon in five years.

Stressing it was his personal view and that details of the format have yet to be revealed, Yang said the business model for fifth-generation service "will not be like 4G, 3G and 2G, where you have universal, comprehensive, seamless network coverage."

That is partly because "5G and [the latest existing] 4G will certainly coexist for a long time and develop in coordination." He also noted that the company was "open to cooperation" with its peers when it comes to infrastructure building.

Telecom carriers, including China Telecom, have made substantial capital expenditures in the past when upgrading to a next-generation service, but Yang seemed to hint at a much lighter burden for 5G, although he did not provide specific figures.

He said that since details such as the allotted spectrum and other technology standards had yet to be nailed down, "I am really sorry but I don't have the numbers." The only thing he gave away on the migration to 5G was that the carrier would start trials in 2019 and commercial use from 2020.

Wang Jinjin, Asian telecom analyst at UBS Securities, also does not expect a drastic increase in 5G investment any time soon, citing uncertainties around the technology.

"[Fifth-generation] standards are not yet finalized and its monetization models are different from 2G, 3G or 4G networks because it's machine-centric rather than human-centric," said Wang on Aug. 10. "We expect a more gradual process for 5G investment, unlike the spike we've seen for 4G."

The level of investment is closely linked to the company's capacity to deliver dividends. Some listed Chinese state-owned enterprises have become more generous about returning cash to shareholders recently. China Telecom's larger peer China Mobile announced earlier this month that it would pay a special dividend of 3.2 Hong Kong dollars (41 cents) per share on top of the interim dividend of HK$1.623, for a total of 85.7 billion yuan ($12.8 billion).

Even though China Telecom, as is typical for the company, has not declared an interim dividend this year, Yang said he would take into account factors such as profit levels and shareholder demands, adding that "if the cash is ample, of course we could share more with shareholders."

The company said that net profit attributable to shareholders for the first six months of 2017 was 12.53 billion yuan, a 7.4% increase from a year before. Its revenue came in at 184.11 billion yuan, up 4.1%. On top of stable earnings, the sum of cash, cash equivalents and short-term bank deposits stood at 25.64 billion yuan as of the end of June. The company paid out 7.53 billion yuan in dividends last year.

In terms of spending, he said "last year was the peak of investment." Capital expenditures reached 96.81 billion yuan last year, and are expected to be 8% less at 89 billion yuan this year. He added that "unless there are any special situations, our total capex will continue to clearly decrease."

Meanwhile, peer China Unicom recently became the first to accept private investment under a so-called "mixed ownership" scheme being pushed by the government to revitalize state-owned enterprises. On this topic, Yang was more guarded. Even though telecommunications is one of the government's seven areas of focus on this initiative, Yang said "mixed ownership reform is not the only reform." He acknowledged that China Unicom could be a "good example."

After stumbling through regulatory hurdles, China Unicom announced on Monday it would issue up to 9.03 billion new shares worth 61.72 billion yuan to nine private companies, including China Life Insurance, Tencent Holdings, Baidu, JD.com, Alibaba Group Holding and Suning Commerce Group.

Yang left the door open to the possibility of following Unicom's example. "This is not something that we could decide, it is the state that determines this," he said.

Nikkei staff writer Jennifer Lo in Hong Kong contributed to this story.

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