China Mobile

China Mobile's earnings fall 5.9pc, ending 14-year run of profit growth

World's largest mobile operator facing cost pressure from handset subsidies, WeChat competition and lower pricing for 4G services

PUBLISHED : Thursday, 20 March, 2014, 1:39pm
UPDATED : Friday, 21 March, 2014, 5:20am

China Mobile said net profit fell 5.9 per cent to 121.7 billion yuan (HK$153.6 billion) last year due to heavier investments in infrastructure resources. It was the first time in 14 years that profits at the world's largest mobile company by subscribers failed to grow.

The company said there would be no price war on the mainland among telecommunicatuions operators adding fourth-generation service subscribers in 2014 although the market trend is for prices to fall.

"[The] 4G package should be cheaper than that of 3G due to advancing technology," said China Mobile chairman Xi Guohua. The company admitted last year it could only appeal to users with lower prices because "differentials [are] limited in competition and the market is almost saturated", according to chief financial officer Xue Taohai.

Revenue rose 8.3 per cent last year to 630.2 billion yuan. China Mobile had 767.2 million subscribers at the end of last year, among whom 191.6 million are 3G users.

Ricky Lai, a research analyst at Guotai Junan International, said pressure on China Mobile is mounting. "Handset subsidies are increasing, traditional business is being replaced by substitutes like WeChat, and 4G packages are cheaper than that of 3G," he said.

Net profit margins dropped to 19.3 per cent in 2013 from 22.2 per cent the previous year.

Shares of China Mobile fell 3.6 per cent yesterday to close at HK$67, while the Hang Seng Index lost 1.8 per cent. China Mobile said capital expenditure for 2014 will rise 21.8 per cent to 225.2 billion yuan, a third of which will be spent on 4G-related business.

Subsidies on handsets will increase to 34 billion yuan, compared with 26.3 billion yuan in 2013.

"It includes subsidies for handsets of 3G, 4G and iPhones," Xue said. "We enhanced spending on subsidies because it is the first year for 4G services in China and we want to seize the opportunity."

The company said consumers relied less on subsidies. The average subsidy in 2013 was 541 yuan per handset, 10 per cent less than the previous year.

The company expected spending to remain high in 2015 due to investments in the 4G network but is confident it will decrease by 2016. China Mobile wants to build 500,000 4G base stations this year and ensure the network covers every city on the mainland by the end of the year.

China Mobile launched TD-LTE services at the end of last year after Beijing granted the three leading operators licences to work on the standard. The company said it has signed 1.34 million users so far.