China Mobile Flags Concerns as Profits Dip

China Mobile has raised worries about the unpredictability of regulatory policies and the challenge posed by Internet companies while posting slight dips in service revenues and profits for the 2015 financial year.

The introduction of new, lower-cost pricing plans -- made in response to regulatory demands -- has triggered a 43% drop in data tariffs, said China's biggest mobile operator, with knock-on effects.

China Mobile Ltd. (NYSE: CHL) competes against smaller rivals China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA) and has been the main beneficiary of soaring demand for higher-speed 4G services among Chinese consumers even as earnings have come under pressure.

Results published today show that revenues from telecom services fell by 1.3% last year, to 584.1 billion Chinese yuan ($90.1 billion), while profit attributable to equity shareholders dipped by 0.6%, to RMB108.5 billion ($16.7 billion).

Overall revenues increased by 2.6%, to RMB668.3 billion ($103 billion), thanks to product sales and other lines of business.

Those figures appeared to miss analyst expectations and sent China Mobile's share price down by more than 2% in Hong Kong today.

Despite the squeeze on sales and earnings, the operator's mobile customer base grew by 2.4%, to 826 million subscribers, last year, as consumers flocked to the company's 4G offerings.

Having started the year with about 90 million 4G customers, China Mobile ended it with a staggering 312 million, meaning 38% of its mobile subscribers are now using the high-speed technology.

Its 4G lead over rivals China Unicom and China Telecom has continued to grow, even though both companies have received licenses to roll out 4G using the FDD spectrum they favor over China Mobile's TDD variant.

China Unicom, which reported a 12.4% drop in net profit earlier this week, had just 44.16 million 4G customers at the end of 2015 and reported the loss of 14.26 million mobile customers last year, leaving it with a total of 252.32 million in December.

China Unicom has similarly blamed tough competition and regulatory moves, including tax changes, for its recent financial difficulties.

China Telecom is not due to publish 2015 results until next week but has already revealed it had around 58.46 million 4G customers at the end of last year out of a total of 197.9 million mobile subscribers.

A big problem for China Mobile has been a decline in average revenue per user, which fell from RMB59 ($9.10) per month in 2014 to RMB56 ($8.64) last year.

Mobile service revenues (RMB billions)
Source: China Mobile
Source: China Mobile

In a presentation, the operator blamed a decline in revenues from traditional business, with customers continuing to switch to over-the-top alternatives, for the setback.

China Mobile says it will have to make greater inroads into new digital service opportunities if it is to prosper in future.

"We need to maximize opportunities in new technologies and services such as big data, cloud computing and the Internet of Things," said the operator in a statement. "This is not an easy task and calls for persistence and endeavor."

All three of China's state-backed telcos are expected to have a major role to play in the government's "Made in China 2025" and "Internet Plus" initiatives, aimed at rebooting manufacturing and putting digital technologies at the center of the economy. (See China's Telcos at Heart of IIoT Plans .)

Want to know more about 4G LTE? Check out our dedicated 4G LTE content channel here on Light Reading.

So far, however, IoT strategies have not been a prime concern for the telcos as they have continued to focus on the rollout of 4G services for smartphone-using consumers.

China Mobile spent a total of RMB195.6 billion ($30.2 billion) in capital expenditure last year, with RMB79.1 billion ($12.2 billion) of that going specifically towards the rollout of 4G, but it expects investments to fall to RMB186.2 billion ($28.7 billion) this year.

China's telecom sector has gone through a turbulent few months, witnessing top-level management changes at China Unicom and China Telecom as well as the pooling of network assets by all three telcos in a new infrastructure business, called China Tower. (See China Telecom CEO Steps Down, All Change in China? and Telcos pool $34.5B of assets in China Tower.)

In January, China Unicom and China Telecom also announced separate plans for a strategic partnership aimed at reducing costs and improving services. (See China Unicom, Telecom Flag Strategic Partnership.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

kq4ym 3/27/2016 | 4:22:30 PM
Re: OTT Maybe the proposed strategic partnershop between the two might ease the problems involved with the unpredictability of regulatory policies, and maybe the combined clout could alleviate some of the policies, but then again maybe companies there have less clout than in other parts of the world, even in areas sometimes even more unpredictable.
danielcawrey 3/18/2016 | 3:14:08 PM
OTT Everything is going over the top these days. While China Mobile used to be able to monetize things like talk and text, most people aren't using smartphones in that way. Premium services and new technical roll-outs are going to have to become moneymakers for the company in the future, that's for sure. 
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