Telecommunications Industry: 4G Licenses Officially Issued, Investment Opportunities Grasped in Three Aspects

Event: On December 4, the Ministry of Industry and Information Technology officially issued 4G licenses, granting TD-LTE licenses to China Mobile, while China Telecom and China Unicom received both TD-LTE and FDD-LTE licenses.\Comment:\The 4G era officially begins, and improvement in prosperity is worth looking forward to.\The issuance of licenses is a landmark event for the telecommunications industry, signaling the official start of 4G investment, with policy barriers to 4G investment basically removed. From an investment perspective, 4G investments next year will drive growth in capital expenditure by operators. Looking at the operator segment structure, China Mobile will be the main driver of investment, and we believe the TD industry chain will benefit from industry investment growth next year.\Frequency allocation is basically determined, with some preference given to China Mobile.\Previously, China's Radio Administration announced the TD-LTE spectrum allocation plan: China Mobile 1880-1900MHz, 2320-2370MHz, 2575-2635MHz; China Unicom 2300-2320MHz, 2555-2575MHz; China Telecom 2370-2390MHz, 2635-2655MHz. From the frequency allocation perspective, the policy gives a certain tilt toward China Mobile's TD-LTE, with the 1880-1900MHz band having better coverage characteristics.\Global commercial examples exist, and construction has already begun in some domestic regions.\According to the latest data released by GSA, as of November 2013, more than 474 operators worldwide have invested in LTE network construction, with 222 LTE commercial networks already in operation. Globally, 18 countries have deployed 23 TD-LTE commercial networks. Domestically, in the second half of 2013, China Mobile tendered for 200,000 TD-LTE base stations, with contract amounts exceeding 20 billion yuan. In 2014, China Mobile's 4G network capital expenditure is expected to reach 50 billion yuan, with over 400,000 base stations to be newly built. According to disclosures from China Telecom, 4G network investment expenditure next year will be around 40 billion yuan. Currently, China Mobile has already launched 4G trial commercial services in multiple cities including Guangzhou, Hangzhou, and Beijing.\Investment Strategy: The timing of 4G policies basically aligns with market expectations. Previously, we believed that policy expectations for 4G licenses were an important short-term support factor for telecommunications industry valuations. This factor disappears with the issuance of 4G licenses.\The future trend of the telecommunications industry will depend on three aspects: first, the degree of substantial improvement in industry investment, i.e., the scale and progress of operators' capital expenditure; second, the order in which the industry chain benefits; and third, the valuation re-evaluation brought by the launch of IPOs and reforms under the registration system.Based on the analysis of the above three factors, we prioritize recommending the network optimization industry at a turning point, undervalued optical fiber and cable, and base station supporting enterprises. In addition, we suggest paying attention to equipment leaders directly benefiting from 4G. Recommended companies include Metenno, Bonded Technology, Hengtong Optoelectronics, Guangxun Technology, EasTone Century, ZTE, FiberHome, and Fuchun Communications.
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