China mobile posts first fall in profit since 1999

China Mobile Ltd., the world’s biggest phone company by market value, had its first decline in profit since 1999 after adding fewer customers as competition intensified.

Second-quarter net income fell to 30.1 billion yuan ($4.4 billion) from 30.6 billion yuan a year earlier, according to figures Bloomberg derived from first-half earnings reported by the Beijing-based company today. The carrier was expected to post profit of 31.1 billion yuan, the median of five analysts estimates in a Bloomberg survey.

The average monthly phone bill fell 11 percent as China Mobile focused on lower-income rural areas to defend its lead after an industry revamp allowed China Telecom Corp. to enter the mobile-phone market. Chairman Wang Jianzhou cut prices and is upgrading networks to expand more lucrative high-speed services after Telecom and China Unicom (Hong Kong) Ltd. started offering the technology earlier this year.

“A lot of the customers they are signing up are in the rural areas, who don’t spend as much,” Daniel Baker, who rates China Mobile shares “hold” at Mirae Asset Securities in Hong Kong, said before the earnings. “In the metro areas, there have been a few price cuts, which is not helping things.”

China Mobile, the worst-performing stock among the three Chinese phone carriers this year, rose 1.1 percent to HK$84 at the midday trading break in Hong Kong before the earnings announcement. The stock has advanced 8 percent this year, less than the 33 percent increase in China Telecom, the country’s biggest fixed-line carrier, and 17 percent gain in Unicom, the second-biggest domestic mobile-phone company.

Government Reorganization

China Mobile added 15.96 million users in the three months ended June 30, compared with 22.5 million a year earlier. The company had a total of 493 million at the end of July, more than the combined populations of the U.S. and Japan.

China Telecom, which bought the smaller of Unicom’s two mobile-phone divisions under a government-mandated reorganization last year, gained 6.4 million users in the newly acquired unit in the second quarter, 18 times the number of subscribers it added a year earlier, after starting third- generation services and boosting handset subsidies.

China Mobile’s second-quarter sales rose to 111.6 billion yuan from 102.8 billion yuan.

Average revenue per user, an industry measure of the size of a phone bill, fell to 75 yuan a month in the first half, China Mobile said. That declined from 84 yuan a year earlier.

China Mobile last reported a profit decline in 1999, according to Bloomberg data.

Upgrading Networks

China Mobile will offer third-generation services in 238 cities by October, the company said in January. Most of the carriers spending this year will be focused on upgrading networks to enable them to offer integrated 2G and 3G services, the company said in March.

China Telecom said started its 3G service in March and planned to expand the high-speed network to 300 Chinese cities by last month. Unicom started trials of its 3G service in May.

The two smaller carriers offer 3G services, which allow faster Web browsing and downloads on mobile-phones, using internationally developed technology. China Mobile’s high-speed service is based on the time-division code division multiple access, a Chinese standard.

Dell Inc. is developing a so-called smart-phone for China Mobile, Jess Blackburn, a Dell spokesman, said in an e-mail on Aug. 17. He declined to provide more details about the device or say when it will be introduced.

Chairman Wang said in May that China Mobile is in talks with Apple Inc. to sell the iPhone in China.

Source: Bloomberg

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