Big Winner of China's 4G License Award

12/09/2013 11:00 am EST

Focus: TECHNOLOGY

Jim Jubak

Founder and Editor, JubakPicks.com

The short-term winner is not necessarily the same as the long-term, writes MoneyShow's Jim Jubak, also of Jubak's Picks, who offers his picks for both, given the recent award of 4G licenses in China.

In the short-term, certainly Apple (AAPL) is the best way to play the recent award of 4G licenses in China. (Apple is a member of my Jubak's Picks portfolio.)

In the longer run, China's move to 4G—from the current homegrown 3G and 2G standards—will lead to a huge increase in highly lucrative data-heavy traffic for China Mobile (CHL), China's biggest operator, with 740 million subscribers, and, to a lesser degree, for smaller rivals China Unicom (CHU) and China Telecom (CHA). But that growth in traffic will come only after China Mobile spends heavily—$31 billion in 2014—to upgrade its network. That's about what China Mobile will spend in 2013, and a 50% increase in capital spending over its five-year average.

While Apple's iPhone works on the current 3G networks of China Unicom and China Telecom, it doesn't really work very well on China Mobile's current network. In fact, it's amazing that China Mobile has 45 million iPhone customers now, given the way that iPhone users have to cobble together a patchwork network using the company's 2G network and Wi-Fi.

You can understand the potential in 4G for China Mobile, since the company says that current iPhone customers consume about 25% more data than its current 3G customers.

Apple shares have surged repeatedly in recent days, on rumors that the company will finally sign a deal with China Mobile, after more than a decade of negotiation. The award of 4G licenses brings that likelihood close—although China Mobile has denied every recent rumor of a deal.

And since Apple won't be the company spending $31 billion a year on upgrading its network, I'd guess that the announcement, when it finally comes, will be a bigger deal for the iPhone vendor than for the cell phone operator.

Especially because getting access to 740 million customers would be a significant rejoinder to Wall Street voices asking “So, where's the growth?” about Apple.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.

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