China Mobile beat forecasts with quarterly profit growth of 51 percent, lifting its shares 4 percent, and said it will begin offering long-awaited 3G services across the world's top telecoms market by June 2009. On Wednesday, the world's largest wireless carrier said it would launch high-speed, third-generation services in 38 cities by the end of June 2009, marking the first large-scale rollout of 3G for the country, ahead of rival Unicom.
Shares in China Mobile jumped as much as 4.3 percent to their highest in more than two weeks, as investors cheered resilient margins and the firm's fastest pace of quarterly earnings growth in about four years. China Mobile now faces increasing competition in a shifting telecoms landscape, and pressure on traditional voice margins. Beijing unveiled in May a sweeping industry reshuffle that will see the creation of two full-service competitors to China Mobile via mergers and acquisitions.
And some analysts warn that China Mobile will face problems in overseeing the rollout and development of the untested, home-grown 3G technology, known as TD-SCDMA or Time Division Synchronous Code Division Multiple Access. Rivals China Telecom, Unicom and Netcom will get to develop more advanced, globally accepted standards.
"The competition will of course be more intense, but each company will still have space to develop," Chairman Wang Jianzhou told reporters. "TD-SCDMA is a few years behind other 3G technologies," he said, adding that many customers had complained that the network and handsets were unstable.
To overcome negative perceptions, China Mobile is working with global vendors such as Nokia, Sony Ericsson and Motorola to try get them to provide quality cellphones and other support. China Mobile posted April-June net profit of 30.7 billion yuan ($4.48 billion) versus 20.34 billion yuan a year ago, according to Reuters calculations of previously reported figures, its best quarterly growth in over four years. That result beat an average forecast of 27.66 billion yuan according to five analysts polled by Reuters.
Away from the brewing battle over third-generation services, China Mobile and Unicom are battling to court lower-paying customers in rural areas as major cities become saturated, and hawking "value-added" offerings such as music and news. A boom in value-added sales helped China Mobile trounce analysts' expectations and safeguard margins. For the six-months ended June, revenue from "value-added" services grew 26.4 percent to about 53 billion yuan.
Margins on earnings before interest, tax, depreciation, and amortisation (EBITDA) dipped just slightly to 53.1 percent in the first-half, from 53.5 percent in the first quarter, despite margin pressure from its rural drive. "The first half is mainly driven by value-added services, but we remain concerned about increasing competition and regulatory risk," Charles Huang, Director, China Research at BNP Paribas told Reuters.
Longer-term prospects for China's mobile operators depend on the take-up of 3G - which enables video streaming and faster Internet access on phones - because it will open new sources of revenue.
China Mobile's stock had dropped 9.5 percent in April-June, lagging the Hang Seng index's 3.3 percent fall. Average revenue per user (ARPU), a key performance indicator, steadied to 84 yuan per user at the end of June from 82 yuan at end-March, but was down from 88 yuan a year earlier as new users tended to be from poorer rural areas. China Mobile added 45.25 million new subscribers during the first half, bringing the total to 415 million - more people than there are in the United States and Germany combined.
The firm added 7.11 million mobile subscribers in July, down 6 percent from the previous month, according to CLSA. The investment bank added that could be a blip, citing a potential decrease in efforts to entice new customers in the run-up to the Olympics in August.
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