An Investor’s Quick Overview of How China Tower Generates Cash

This Chinese telecommunications infrastructure company is favourably positioned to grow for many years. Here’s how it makes money. – China Tower

China Tower Corp Ltd (SEHK: 788), the world’s largest telecommunications tower infrastructure service provider, has seen its share price decline by about 27% from its peak of HK$1.99.

Its lower share price might be a good reason for investors to take a deeper look at the company.

In this article, I’ll explore one important aspect of the company – how it makes money.

Business overview

China Tower operates its business mainly under four segments, namely; tower, distributed antenna business (DAS), trans-sector site application and information (TSSAI), and energy operations.

The remaining businesses fall into the other segment.

The first three segments focus on providing services to the telecommunications service providers (TSPs) – mainly China Mobile, China Telecom, and China Unicom – using different infrastructures.

Tower business

The tower business is by far the most dominant segment within China Tower, accounting for 93% of its 2019 revenue.

Here, China Tower generates income from renting out its towers (macro and small cells) to TSPs to install their antennas and other macro-cell equipment.

It also offers ancillary equipment and services, power supply, and site maintenance to support the consistent functioning of customers’ macro-cell equipment.

Apart from TSPs, China Tower also leverages its towers to host equipment from other industries. Below is a diagram illustrating the company’s tower business.

China Tower revenue

Source: China Tower’s website

Other businesses

The remaining business segments account for around 7% of China Tower’s 2019 revenue, with DAS and TSSAI business accounting for 3.5% and 2.5%, respectively.

The DAS business focusing on serving TSPs’ wireless coverage needs in buildings and tunnels – such as subways and high-speed train tunnels – which cannot reliably receive wireless signals from towers.

Here, China Tower connects TSPs’ equipment to its DAS sites to facilitate TSPs’ wireless communication in buildings and tunnels.

TSSAI, on the other hand, provides a variety of services – such as site-based information services – to other industries leveraging its resources which include nationwide tower sites, continuous power supply, centralised maintenance platform, and convenient communication.

Examples of services here include surveillance for air quality, meteorology, seismology, and drones.

Foolish bottom line

Overall, China Tower has a relatively straightforward business model of renting out its towers and other infrastructures to TSPs and other industries.

With the increase in demand for high-speed wireless connectivity and the arrival of 5G technology, China Tower is well-positioned to grow its business over the short, medium, and long term.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga does not own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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