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Monitor

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Why you can trust SCMP
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HERE WE GO in another rerun of the old story of analysts failing to spot that one of their darlings was no longer very sexy any more.

China Mobile shocked the market on Thursday with first-half numbers well short of expectations. It has since lost 22.41 per cent. But should it have been quite such a surprise?

After all it was widely known that 90 per cent or more of the legions of new subscribers were going for budget pre-paid plans. Not only that but it was cannibalising its own subscriber base. Postpaid subscribers were switching to prepaid to save money. Not surprising then that average revenue per user plunged 28.5 per cent from the end of last year to 158 yuan per month.

Most investment banks bought the company's story that while cheap tariff plans would mean lower average revenue per user (ARPU), that would be compensated for by higher growth in subscribers and minutes of usage.

It has not worked out that way however. Subscriber growth fell to 1.1 million in July, down from an average of 1.5 million per month. The interims showed average minutes of usage per subscriber had risen a miserable 1 per cent for post-paid subscribers since the end of last year and actually dropped 13 per cent for pre-paid.

Back in late June, when the stock was trading about HK$40, there were 10 buys on China Mobile, two holds and only one sell, according to JCF Group. The lone sellers were not one of the heavy hitters but Kim Eng Securities.

Kim Eng analyst Edward Fung put his finger on the ARPU problem. Why did his more highly paid peers fail to warn their clients they were riding for a fall by holding China Mobile?

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