China Mobile's profit has declined for the seventh quarter in a row because of spending on the promotion of 4G services as average revenue per user continues to shrink.
The state-backed company, which operates China's biggest mobile phone network, has been racing to sign customers up to its 4G service, but recent adopters are thought to spend somewhat less on mobile data services than subscribers who have been on the 4G network for much longer.
Thanks to customer growth, China Mobile Ltd. (NYSE: CHL) was able to report a 3.9% year-on-year increase in revenues in the January-to-March quarter, to 160.9 Chinese yuan renminbi (US$25.9 billion), but its net profit slid by 5.6%, to RMB23.8 billion ($3.8 billion), over the same period.
The operator's customer base grew by 8.75 million in the quarter, giving it 815.4 million subscribers in total, while the number of customers using 4G services rose from about 90 million at the end of 2014 to 143.1 million in March.
The migration from 3G to 4G services is also having an impact on China Mobile's 3G business, which saw customer numbers drop from about 245.8 million in December to 234.8 million in March.
Although it has quickly built a commanding lead over rivals China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA) in the 4G market, China Mobile appears more interested in converting more customers to 4G than in protecting its profitability.
Average revenue per user fell from RMB62 ($10) per month in January-to-March 2014 to about RMB59 ($9.50) in the recent quarter, although it was up from RMB58 ($9.35) during the last three months of 2014.
In its results statement, China Mobile blamed the impact of over-the-top services for a decline in voice and text-messaging services. The erosion of revenues from traditional service offerings may explain the operator's eagerness to shift customers on to service plans based on data usage.
According to China Mobile's own data, average minutes of usage per user per month fell from 446 in the last three months of 2014 to 429 in the January-to-March quarter. The number of text messages carried over China Mobile's network also fell from 156.1 billion to 146.2 billion over the same period.
The operator warned the market that "the annual growth rate of revenue from sales of products may decrease" in its earnings statement.
China Mobile has been using the TDD variant of LTE technology to provide 4G services, while both China Unicom and China Telecom see a bigger role for the FDD standard. However, each of the three operators is in possession of licenses for both systems. (See China Mobile Profits Fall on 4G Spending and China Issues 4G TDD Licences.)
FDD uses one block of spectrum for uplink communications and another for downlink, but TDD runs all communications over the same allocation.
The former is more widely used in other parts of the world, and China Mobile's rivals may be able to benefit from the economies of scale this brings.
— Iain Morris, , News Editor, Light Reading