China’s Ministry of Industry and Information Technology (MIIT)
has revised the network interconnection fees for Chinese carriers
in the new year. Interconnection fees, or settlement charges,
are what carriers on the calling side of a voice call pay those on
the receiving side to cover the costs of interconnecting the two
networks. The MIIT has lowered these fees for calls from China
Unicom (

) or China Telecom (

) to a China Mobile (

) number (excluding those on its 3G TD-SCDMA network) from 0.06
yuan per minute to 0.04 yuan per minute. However, China Mobile
will still have to pay the earlier rate of 0.06 yuan per minute for
all calls made from its network (except 3G) to a Unicom or Telecom
number. The revision is most likely an effort by the Chinese
government to level the playing field for China Unicom and China
Telecom in the China Mobile-dominated Chinese telecom market.

On account of the revision, China Unicom will be paying 33%
lower interconnection fees for calls made from its network to a
China Mobile number (excluding TD-SCDMA 3G) but all its other calls
will incur the same fees as earlier. We believe this can reduce
Unicom’s operating costs by over $500 million for the current year,
which should increase EBITDA by a similar figure as revenues are
likely to remain unaffected. This can potentially increase Unicom’s
valuation by as much as 20%. However, considering that the impact
of interconnection fees is likely to decline in the medium to
long-term as subscribers move away from 2G to 3G and 4G, we have
increased our
price estimate by 10% to about $20.

See our full analysis for China Mobile’s
stock here

Skewed Chinese Telecom Market

China Unicom is the second largest carrier in the 1.2 billion
telecom subscriber market in China. However, its 280 million
subscribers pale in comparison to the 760 million subscribers of
market leader China Mobile, which has historically maintained over
two-thirds of the market share. For perspective, Verizon, which is
the largest telecom carrier in the US, has only about 100 million

Although Unicom falls far behind China Mobile in terms of total
subscribers, its performance in 2G to 3G transitions has been much
better. Unicom has over 42% of its subscribers using 3G as compared
to about 23% for China Mobile. China Unicom, along with China
Telecom, were able to gain share in the Chinese 3G telecom market
because China Mobile couldn’t capitalize on its position as market
leader to attract 3G subscribers. China Mobile’s TD-SCDMA 3G
technology was incompatible with many of the popular smartphones
available in China and thus its 3G transition was relatively slower
than Unicom and Telecom initially. However, this trend changed
in 2013, as net 3G additions for China Mobile far exceeded those of
Unicom and Telecom combined. Going forward, China Unicom and
Telecom could find it increasingly tough to compete as 4G
mitigates many of the incompatibility issues with China Mobile’s
network and makes it an even bigger force to reckon with in the
future (see
China Unicom Faces 3G Headwinds As China Mobile
Finds Its Footing


To avoid this scenario and provide conditions for fair
competition to the smaller carriers, the government could be
looking to cross-subsidize them by this revision of interconnection
fees. Such a move is bound to boost Unicom’s finances at China
Mobile’s expense, and provide it with some support in rolling out
its 4G network.

How Interconnection Fee Affects China Unicom’s

Any China Unicom subscriber can make a domestic call either to
the carrier’s own network, China Mobile’s network or China
Telecom’s network. Calls on its own network do not attract any
interconnection fee and thus we can exclude them for the sake of
our calculation here. For calls from a China Unicom number to China
Mobile’s 3G network or to China Telecom’s network, the
interconnection fees have not been revised and thus their effect on
Unicom’s operating costs would be the same as last year. However,
China Unicom will pay a revised interconnection fee for calls to
China Mobile’s 2G network, which is 33% lower than the earlier fee
of 0.06 yuan per minute. Considering China Mobile’s 2G subscriber
base is about 580 million, it makes about 60% of the total
subscriber market for which China Unicom will have to pay
interconnection fees. Assuming that about 60% of China Unicom’s
interconnection fees will be impacted (by 33%) as a result of this
regulatory change, and that Unicom’s wireless interconnection costs
have increased by about 10% over the $2.5 billion incurred in 2012,
we arrive at a cost savings estimate of about $500 million.

This will correspondingly improve EBITDA by about $500 million
in 2014, improving margins by about 1%. This is because revenues
are unlikely to change, as interconnection rates payable to Unicom
by other carriers remain unchanged. Such an increase in margins
over the long term could potentially increase Unicom’s valuation by
about 20%.  However, considering that the impact of
interconnection fees will decline in the medium to long term as
subscribers shift from 2G towards 3G and 4G, we have increased our
price estimate by only 10%.

Understand How
a Company’s Products Impact its Stock Price at Trefis


The 100 wealthiest people on the planet added $18 billion to their collective net worth this week as U.S. companies began reporting fourth-quarter earnings.

Facebook Inc. (FB)’s co-founder and chief executive officer, Mark Zuckerberg, gained $1.3 billion, according to the Bloomberg Billionaires Index. The largest social-networking service rose 10 percent during the week and hit a six-month high yesterday. Investors are optimistic that the company will benefit from new advertising efforts to drive revenue. The 28-year-old is worth $14.6 billion, making him the 57th richest person in the world.

“Facebook has had a great week,” Matthew Houk, portfolio manager at Horizon Kinetics LLC, said in an e-mail. The New York-based firm manages about $7.2 billion. “However, one of the factors that we focus on is companies with long product life cycles. It remains to be seen whether Mark Zuckerberg can establish Facebook as an enduring product that will generate longer-term value for shareholders.”

Alcoa Inc. (AA) kicked off the reporting season on Tuesday, with the largest U.S. aluminum producer posting sales that beat analysts’ forecasts amid higher-than-expected prices for the metal. In China, inflation accelerated more than forecast to a seven-month high yesterday as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery.

The Standard’s & Poor’s 500 Index gained 0.38 percent during the week to close at 1472.05 in New York. The Stoxx Europe 600 Index fell 0.26 percent, closing at 287.08…  Read More


Apple to Launch iPad 5 in March

by Zagros on January 12, 2013

Apple (AAPL) is going to roll out an updated iPad this Spring, said Brian White on CNBC’s ” Squawk on the Street”Friday.

“I think we’re going to see another refresh come through sometime in Mid-march. So iPad 5, I think will be a thinner, it’s going to be a lighter model and possibly they will tweak the display technology,” White said. watch the video


U.S. stocks were little changed, with the Standard & Poor’s 500 Index poised for a second weekly drop, as industrial production unexpectedly fell and President Barack Obama prepared for budget talks.

The S&P 500 rose less than 0.1 percent to 1,353.5 at 9:32 a.m. New York time. The gauge has fallen 1.9 percent so far this week.

“The market is rotating back to a bit more optimism,” said Peter Jankovskis, co-chief investment officer for Oakbrook Investments in Lisle, Illinois, which manages about $2.9 billion. “We’re all on this wait-and-see mode right now. The fiscal cliff is the most obvious factor for that.”

President Barack Obama will hold an opening round of talks with Congressional leaders today to reach a deal to avoid a $607 billion deficit-cutting package known as the fiscal cliff. The Wall Street Journal reported that White House officials were holding internal discussions about a plan to replace the cuts with a smaller package of reductions and tax increases. The newspaper cited people familiar with the planning.

Concern about the so-called fiscal cliff has driven the S&P 500 to the lowest level since July 25. The index has retreated 5.3 percent since President Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives.

Industrial production declined in October as superstorm Sandy knocked out power in the Northeast.

Output at factories, mines and utilities dropped 0.4 percent last month after a revised 0.2 percent increase in September that was smaller than previously estimated, Federal Reserve data showed today in Washington. Economists forecast a 0.2 percent gain, according to the Bloomberg survey median. The Fed said the storm cut total production by almost 1 percentage point.

To contact the reporters on this story: Rita Nazareth in New York at; Sarah Jones in London at


Twinkie Maker Hostess to Shut Down After Strike

by Zagros on November 16, 2012

Hostess Brands Inc., the bankrupt maker of Wonder bread and Twinkies, said it will fire more than 18,000 workers and liquidate after a strike crippled operations.

“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike,” Chief Executive Officer Gregory F. Rayburn said today in a statement.

Union members “crippled the company’s ability to produce and deliver products at multiple facilities,” and “bakery operations have been suspended at all plants,” the company said in the statement.

Rayburn said Hostess will dismiss most of its 18,500 employees and focus on selling assets. Shipments of bread, snack cakes and other products will continue until supplies run out, he said.

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike Nov. 9 after a bankruptcy judge in White Plains, New York, imposed contract concessions that 92 percent of the union’s workers reje