China Mobile earnings stall as competition bites

Fiona Chau
21 Aug 2009

China Mobile has reported a 1.4% increase in its first half income, thanks to the economic slowdown, rising mobile penetration rate and increased competition.

The world’s largest mobile operator by subscriber numbers recorded a net profit of 55.3 billion yuan ($8.09 billion) as revenues rose 8.9% to 12.9 billion yuan ($1.89 billion).

However, quarterly profit fell for the first time since it listed 12 years ago. Net income was 30.1 billion yuan ($4.42 billion), compared with 30.6 billion yuan a year ago.

It boosted subs in the first half by 35.87 million to 493 million, but signed up just 959,000 of these to its TD-SCDMA 3G service. ARPU dropped to 75 yuan from 83 yuan and churn edged up to from 2.71% to 3.31% as competition among the three operators intensified.

CEO Wang Jianzhou said the lack of TD handsets remain the key factor for the slow 3G takeup.

“We’ve taken a number of measures to accelerate TD development and terminals, especially handsets with huge quantity and reasonable prices, is an important factor for TD adoption,” Wang said.

Wang said about 50 TD handsets were now available, with one additional model to be launched later this year and five models next year.

On the network side, Phase 2 construction has been completed on schedule to cover 38 cities with 46,000 base stations. The company will soon roll out the phase 3 construction, extending coverage to 238 cities by year-end, Wang noted.

Wang said China Mobile would showcase a TD-LTE demonstration network at Shanghai World Expo next year.

Despite the declining subscriber growth and the slow uptake of 3G, China Mobile experienced strong growth in its VAS services, such as mobile music, mobile gaming and M2M, which contributed 28.1% of its total revenues.

The company expects rural areas and new VAS services, including its new Mobile Market app store, would continue to be the drivers for the growth forward.

Gartner analyst Sandy Shen said while China Mobile is expected to remain the dominant operator for the next five years, its biggest challenge is 3G.

“If it cannot make TD successful or quickly move to 4G networks, it is in danger of losing its high-end customers,” she said. “Overall, mobile broadband will be a high growth area, that’s why the lack of a good 3G network/service endangers the company’s growth prospect.”

The reason TD is slow to develop, she said, is because vendors are unsure of its prospects and so have been sitting on the fence.

The 600 million yuan funding China Mobile allocated for handset development was too little to solve the terminal issue, she said. The funding will help build confidence but follow-up investment by vendors was required to move TD to the mass market.

That said, she expects that it would take at least five years for TD phones to be as competitive as W-CDMA devices today.

“One operator alone won’t solve the problem because it requires concerted efforts of multiple vendors and operators to make this happen, and it takes time,” she noted.

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