“There is no other option but to succeed”, was the public comment made by the new MII minister, Mr. Yizhong Li, supporting TD-SCDMA in Beijing. China Mobile seems to have made the hard choice for social obligation to fulfill the Chinese government’s commitments to TD-SCDMA. This, combined with increased competition for high-end urban users has led many analysts to wonder about the future of China Mobile.

Investors should disabuse themselves of notions that TD-SCDMA will be the albatross that will have an impact on China Mobile and its share value. China Mobile’s management, brand, network, subscriber base, and business models are second-to-none in the world and the other operators in China’s telco space have a VERY long way to go to compete with China Mobile. Moreover, its long-term expansion strategy is based not just on urban consumers but will happen in rural areas of China.

Is the decline in China Mobile’s stock justified? China Mobile’s share price declined sharply on mention of possible asymmetric policy introduction in the government’s public statement of Chinese telecom industry restructuring. We think that the market over-reacted, especially given that China Mobile’s management has always viewed TD-SCDMA as a necessary choice over a possible regulatory penalty and that there is a high degree of co-operation between MII officials and China’s largest mobile operator. In other words, we think that MII is not going to risk value destruction of its most valuable asset (the largest operator in the world) by announcing a policy that favours other telcos over China Mobile.

Moreover, capex, subscribers and services of TD-SCDMA are all under the unlisted parent company and should have no bearing on the listed company.

Will urban wireless competition affect China Mobile? If we assume the worst case scenario in the post-restructured Chinese wireless space, there will be three wireless players compared to the current two. The disposal of the CDMA business by China Unicom will help it focus on its GSM business while China Telecom emerges as the new CDMA player.

The difference, therefore, is that China Telecom will be the new competitor in China’s cellular space. However, readers will recall that back in 2002 and 2003, China Telecom defied regulations to deliver inexpensive mobile services in the form of PAS. We think that PAS convinced many consumers to try mobile services, brought down overall mobile pricing, and helped to expand the customer base for the cellcos’s (China Mobile and China Unicom).

The problem is that China Telecom will live with that brand image as a provider of low-cost mobile services for a very long time to come. So how does its acquisition of a CDMA network allow it to get traction AND beat China Mobile’s GSM network in a relatively higher-priced urban market? No one has been able to explain that logic to us. Further, compared to China Mobile, China Telecom has much to learn about branding, marketing, and provision of value added services in the mobile space, let alone try to manage a cellular network.

When all is said and done, we think that China Mobile is still unbeatable and Unicom and Telecom have a long way to go, with or without TD-SCDMA.