China Mobile expects 19b yuan in lost revenue, profit in 2018 from further tariff reductions
China Mobile, the world’s largest wireless network operator, faces tough days ahead as further tariff reduction measures directed by Beijing are estimated to result in about 19 billion yuan (US$2.7 billion) in lost revenue and profit next year.
That full-year financial impact of tariff reductions announced by Chinese Premier Li Keqiang last month would coincide with China Mobile’s plan to start key investments in core 5G infrastructure and applications, company chief executive Li Yue said in a press conference on Thursday.
Li estimated that China Mobile would incur 7 billion yuan in lost revenue and profit this year, based on the cancellation of domestic long-distance and mobile roaming fees from October 1.
China Mobile, China Unicom and China Telecom have all pledged to abide by Li’s directive to “raise speed, drop prices” by completely removing domestic long-distance and roaming charges from this year, lowering internet access and leased line fees for small and medium-sized enterprises (SMEs), and cutting international long-distance voice tariffs.
Shares of China Mobile tumbled 3.43 per cent, after opening at HK$90.35, to settle at HK$87.25 at the close of trading on Thursday.
The company reported a slight increase in net profit last year to 108.7 billion yuan, from 108.5 billion yuan in 2015, as wireless data traffic became its biggest revenue driver, accounting for 46.2 per cent of total turnover.
That was just above the market forecast of 108.3 billion yuan net profit, according to consensus market estimates from analysts polled by Bloomberg.
Total revenue grew by 6 per cent to 708.4 billion from 668.3 billion yuan in 2015, but missed the consensus estimate of 714.6 billion yuan.
“There will be more pain ahead for all three Chinese telecommunications network operators unless the tariff cuts are offset by increased network usage next year,” Jefferies equity analyst Edison Lee said.
“We believe the impact on profit from tariff cuts has been somewhat underestimated by the market.”
Lee added that the three operators need to perform a careful balancing act between further lowering tariffs and driving profitability.
China Mobile estimated the tariff reduction measures to result in a 4 billion yuan decrease of revenue and profit this year from the removal of domestic long-distance and roaming tariffs, and around 3 billion yuan due to lower dedicated internet access tariffs for SMEs and international long-distance call charges.
“We believe these initiatives will, in the long run, accelerate our transformation towards predominantly data traffic and digital services,” China Mobile chairman Shang Bing said.
The operator added 22.6 million new subscribers last year, which swelled its total user base to 848.9 million at the end of December. That included 535 million 4G subscribers.
It aims to add 100 million new 4G users this year, putting 75 per cent of its total subscribers on that mobile broadband service. It is also targeting an additional 20 million new fixed-line broadband subscribers, which totaled 77.6 million at the end of December.
China Mobile expected its capital expenditure this year to reach 176 billion yuan, down from 187.3 billion yuan last year, but rise again in 2019 when large-scale 5G investments are expected to begin.
“We need to keep up with technological upgrades and innovation, such as 5G, cloud computing, internet of things and big data,” Shang said.
China Mobile announced a dividend payout ratio of 46 per cent for last year, up from 43 per cent for the past 10 years. It recommended payment of a final dividend of HK$1.243 per share.
Combined with the interim dividend of HK$1.489 per share paid earlier, the total dividend payout this year will be HK$2.732 per share.