China Mobile Cuts Capex

World's largest mobile operator reports rising profits as it cuts back on spending over next three years

March 19, 2003

2 Min Read
China Mobile Cuts Capex

GSM operator China Mobile (Hong Kong) Ltd. (NYSE: CHL), the world's largest mobile operator, announced improved profits yesterday, but growth appears to be slowing, and it's paring back the vendor treasures available in its capex plan (see China Mobile Reports 2002).

In announcing its results for 2002, the company announced a 17 percent increase in net profit to 32.7 billion yuan (US$3.95 billion). Less encouraging was an 18 percent reduction in average revenue per user (ARPU), from 141 yuan ($17) in 2001 to 115 yuan ($13.90). It also proposed cuts in its capital expenditure plans for the next two years.

The operator is still building out its network and has plans to construct a 3G network in the coming years once licenses have been awarded (see What's Up With Chinese 3G? and Siemens Prepares for China Deal). But, according to analysts at Lehman Brothers, it has reined back its future spending plans and spent less than originally expected in 2002 as well.

China Mobile's 2002 capex totaled $6 billion, $500 million less than planned. In addition, according to the Lehman team, the proposed capex for 2003 has been trimmed by $200 million to $5.6 billion, while the proposed outlay for 2004 has been slashed by $400 million to $4.9 billion. In 2005 it has earmarked $4.5 billion for capex.

While obviously this is disappointing news, a total capex outlay of $15 billion over three years still represents some serious booty. China Mobile's vendors, which include Alcatel SA (NYSE: ALA; Paris: CGEP:PA), LM Ericsson (Nasdaq: ERICY), Nokia Corp. (NYSE: NOK), and Siemens AG (NYSE: SI; Frankfurt: SIE), have the most to gain or lose.

These suppliers will be sweating over the success of early 3G services, though, as the China Mobile management is keen to see a clear business case for wideband CDMA (WCDMA) before committing heavily to next-generation networks, according to the Lehman analysts. It will be carefully watching developments in Japan, the U.K., and Italy, where billions have been invested by 3G license holders.

WCDMA is the high-speed upgrade air interface technology for GSM operators, so it would be a natural evolutionary path for China Mobile.

Of course, you can never tell what those cats at the Chinese government are going to do for some 3G spectrum. It's just possible that China Mobile may deploy some equipment based on China's home-grown 3G standard, TD-SCDMA (time division synchronous code division multiple access). So many ponderables!

China Mobile is the world's largest mobile operator in terms of customers -- 120 million at the end of January this year. And there are now 206 million mobile subscribers in China, compared with 214 million fixed-line subscribers.

— Ray Le Maistre, European Editor, Unstrung

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