China Mobile Profit Dips on 4G Costs, Tax

China Mobile has reported a slight dip in net profit for the first half on rising network costs and higher taxes, despite acquiring nearly 50 million 4G customers since March and managing to increase sales.

The state-backed company, which is the largest of China's three national operators, has been spending heavily on the rollout of its 4G network in the face of growing competition from rivals China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA).

Thanks to rising adoption of smartphones and related services, China Mobile Ltd. (NYSE: CHL)'s revenues were up 4.9% in the first half of 2015, to 340.7 billion Chinese yuan (US$53.3 billion), compared with the same period last year.

Around 190 million of the operator's customers are now on 4G plans, up from 143.1 million in March, and average revenue per user for 4G customers is 1.6 times that for the overall subscriber base.

The operator's revenue growth was also driven by a 3.4% increase in the total number of customers it serves, to 817.2 million, since the first half of 2014.

Like its two main competitors, China Mobile is pushing customers towards data services amid signs of a slowdown in the older voice business and as service prices continue to fall.

Revenues from voice services fell by RMB27.1 billion ($4.24 billion) in the first half, compared with the same period last year, while those from mobile data grew by RMB28.9 billion ($4.52 billion).

In the meantime, average monthly revenue per user fell from RMB64 ($10) to RMB62 ($9.7) over the same period.

In a presentation of its results, China Mobile complained about increasing pressure on operating expenses, noting a rise in device and depreciation costs since the first six months of 2014.

As a result of the higher expenses and a slightly bigger tax bill than in the first half of 2014, net profit slid by 0.8%, to RMB57.3 billion ($8.96 billion).

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The update came just a day after China Telecom blamed the introduction of new taxes for a 4% fall in its own first-half net profit and flagged a 0.6% dip in revenues. (See China Telecom Hit by Taxes as 4G Subs Soar.)

China Telecom has also witnessed a surge in its base of 4G customers since earlier this year, when it received a license to operate FDD-based 4G services from China's government.

Although it remains a long way behind China Mobile, which has rolled out services using the alternative TDD standard, China Telecom has signed up 22 million 4G customers since the beginning of the year and now serves a total of 29 million.

Table 1: Financial Performance in H1 2015 (RMB Billions)

Total revenue YoY change Mobile service revenue YoY change Net profit YoY change
China Mobile 340.7 4.90% 299.5 0.50% 57.3 -0.80%
China Telecom 165.0 -0.60% 62.3 0.60% 11.0 -4.00%
Source: companies.

Table 2: Customer Growth in H1 2015 (Millions)

Mobile customer adds Total mobile customers 4G adds Total 4G customers
China Mobile 10.57 817.20 99.60 189.66
China Telecom 5.82 191.44 22.00 29.00
Source: companies.

China Mobile said the award of FDD licenses was leading to "intensifying competition" in China's mobile market, suggesting it may struggle to maintain the pace of 4G customer growth in future.

TDD technology uses one spectrum slot for all communications, while FDD relies on one channel for the uplink and another for the downlink and is the preferred 4G technology in most parts of the world.

China Mobile has now spent RMB69.7 billion ($10.9 billion) on capital expenditure so far this year, with 48% of that going towards 4G rollout: It plans to invest a total of RMB199.7 billion ($31.24 billion) in capex for the full year.

China Telecom, by comparison, says it will invest RMB107.8 billion ($16.87 billion) in capex this year, with most of that going on the deployment of 4G and fiber networks.

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

nasimson 8/20/2015 | 1:13:12 PM
continued growth With more pressure from China Telecom and China Unicom in the domestic market, China Mobile would have to go for long pending and much awaited foreign operations. So far the only overseas market it operates in is Pakistan. Whereas it recently missed opportunities like India and Myanmar.
iainmorris 8/20/2015 | 10:18:17 AM
Capex Clearly, China Mobile is nowhere near hitting its capex budget for the year so will have to ramp up spending in the second half to meet that particular target. Good news for vendors?
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