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October 21, 2009

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China Mobile faces tough time

CHINA Mobile, the world's largest mobile carrier, faces little profit growth in the coming quarters as costs to build a new 3G network weigh and increasing competition push it toward lower value subscribers.

Profits for China's top three mobile carriers have been under pressure since late last year when China Mobile and its two main rivals, China Unicom and China Telecom, embarked on a US$58.5-billion plan to build new networks capable of carrying more data and multimedia content.

China Mobile reported its first year-on-year profit decline in years in the second quarter, after China raised the number of mobile carriers to three from two in an industry-wide overhaul.

China Mobile is the largest by number of subscribers, with more than 500 million customers - more than the combined populations of the United States, Germany and Britain.

It eked out a slight year-on-year profit increase in the third quarter, but analysts say its profit will remain largely flat over the next two years before it realizes any benefits from more sophisticated and profitable 3G services.

The company could post 2-percent net profit growth for all 2009 and the same for the next two years due to slow takeoff for its 3G system, which is based on a homegrown TD-SCDMA standard, said Daiwa Securities analyst Marvin Lo.

"People are still looking for profit catalysts, which are not easy to find," said Lo. "3G takeoff usually takes at least three years and may need larger handset subsidies."

China Mobile and its peers also face margin pressure as they dip deeper into China's less affluent countryside for growth due to saturation in more prosperous big cities.

The company added on average 5.68 million new users each month in January-September.

China Mobile yesterday posted third-quarter profit that rose 2.8 percent to 28.6 billion yuan (US$4.2 billion), from 27.9 billion yuan a year ago.

The results, however, fell short of the 29.2 billion yuan forecast in a Reuters poll of six analysts.

The telco's monthly average revenue per user - a key measure of performance - was steady at 75 yuan.



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