China Mobile Edmundo Lozano Ryan Mueller April 19, 2010

Company Background Leading mobile services provider in China World’s largest mobile network World’s largest customer base: 533 mil Developer of the oPhone In charge of developing TD-SCDMA

Stock Information Ticker: CHL Price (May 12, 2009): $48.59 Number of Shares bought: 200 Current Price: $50.30 ◦ Shanghai Index vs CHL Shanghai Index vs CHL 52-week range: $ $59.22

May 12, 2009 Q1 Profits of $3.69 billion Q1 revenue increased 9.2% 15-30% yearly annual growth Has near monopoly in China CHL has 460 million subscribers Operating Margins: 35% Very healthy balance sheet Dividend payout ratio: 43%

May 12, 2009 Sell when one or more of the following risk factors occur: ◦ Re-evaluate at $80 ◦ If China floats is currency ◦ The Chinese government does something to CHL or forces CHL to do something that is contrary to our best interests

Recent News About to invest $5.86 billion (in USD) in Shanghai-listed Shanghai Pudong Development Bank Has asked Apple for help China Mobile’s competitors are selling android-based products and iPhone with WiFi capability ◦ WiFi access has recently been allowed in China

WiFi and WAPI WAPI = Wireless Authentication and Privacy Infrastructure Chinese government has not provided full specification on its encryption algorithm Techies speculate there are “backdoor” capabilities that allow government to monitor its users – consortiuminfo.org

Industry China’s wireless penetration is 48.5% US wireless penetration is 85% Highly regulated Chinese gov’t encourages orderly competition Needs licenses to expand into new technology

Competition China Unicorn (CHU) ◦ Was granted license to operate 3G technology in China on Jan. 7, 2009 ◦ Launched 3G network on October 1, 2009 ◦ GSM and WCDMA ◦ Capabilities include fixed-line voice, broadband internet, IT services, business and data communications services ◦ Has an alliance with Apple to sell the iPhone in China

China Telecom (CHA) World’s largest wireline telecommunications and broadband services provider Mobile Voice 189 million wireline subscribers Mobile subscribers about 56 million CDMA 2000

China’s 3G Network CHL: ◦ In charge of developing TD-SCDMA ◦ Delays in network growth ◦ Scarcity of handset devices ◦ Limited vendor support Competitors: ◦ Can use mature 3G technology ◦ Well-established vendor network w/support ◦ A large variety of handsets available including popular 3G models ◦ Based on WCDMA and CDMA 2000

TD-SCDMA (CHL) China’s own proprietary 3G network Not backwards compatible Not a matured network Claims to be better suited for densely populated areas World’s largest phone maker Nokia has 1 model that offers TD-SCDMA Not much information about it

CDMA 2000 (CHA) January 2002 – South Korea Backwards compatible with GSM CDMA Development Group states that there were 308 operators in 116 countries offering CDMA 2000 Can be smoothly upgraded from existing 2G networks

WCDMA October 1 – 2001 in Japan Has received extensive media coverage Supported by international phone vendors (like Sony, Apple, Nokia) AT&T T – Mobile Backwards compatible with GSM Based on GSM Technology

Legal/Regulatory Issue Chinese government is forcing CHL to develop TD-SCDMA Competitors are upgrading existing GSM networks In order to promote competition, the gov’t has permitted CHU to lower its tariffs by up to 10% below the gov’t standard rates

CCID Survey CCID is a Chinese professional research and consulting firm ◦ Publicly traded Survey was taken around October Up to October ◦ CHL: 2.3 million subscribers (9 months)  October Sales: 644,000 ◦ CHU: 1 million subscribers (1 month)  October Sales: 1,000,000

Survey Results First Choice of 3G service provider ◦ 44.2 % China Unicorn ◦ 26.2 % China Mobile ◦ 18.4 % China Telecom Best 3G network: ◦ 58 % WCDMA ◦ 14.1 % CDMA 2000 ◦ 4.3 % TD-SCDMA Over half of the people surveyed did not want a 3G phone ◦ Main reason: Too expensive

Reasons for Sell Recommendation Numbers looked great last year and numbers look great this year Stock Price has been stagnant Highly Regulated by the Chinese Gov’t Forced to develop China’s TD network without access to current matured 3G technologies Pays higher tariffs than competitors Huge sitting cash flow Growth is being constrained

More Reasons to Sell Competitors can offer cheaper packages and have licenses to sell WCDMA and CDMA2000 (huge vendor support) Very limited number of handsets available TD is in its infancy (limited information) Underperforming versus Shanghai Index Market Share has decreased Average Revenue per user declined 7%

4G? Long Term Evolution: AT&T has announced its rollout of its LTE network in 2011 Compatible with WCDMA and CDMA2000 networks