China Mobile Ltd , the world's biggest wireless carrier by subscribers, posted a 0.9 percent slide in first-half EBITDA as its core telecoms business felt the squeeze from increasing competition. Its shares dropped more than 3 percent.
China Mobile, the only Chinese carrier that doesn't have a deal with Apple Inc
China Mobile has 683 million users, more than twice the U.S. population, but only a tenth use third-generation (3G) mobile technology. The rest use lower-value 2G services, contributing to a 4.3 percent fall in the company's average revenue per user (ARPU).
First-half net profit rose just 1.5 percent from a year earlier and April-June net profit of 34.4 billion yuan -- calculated from company data -- was slightly below expectations of 35.2 billion.
But a 0.9 percent slide in first-half earnings before interest, tax, depreciation and amortisation to 123 billion yuan, suggested its core business was feeling the impact of rising competition, such as from China Unicom <0762.HK>
"This means the telecoms earnings are already declining, which I don't think the market was expecting, so I would say this is quite negative," said Marvin Lo, an analyst at Mizuho Securities in Hong Kong.
"The second-quarter results this year are going to trigger a downward revision for China Mobile's earnings going forward."
The carrier competes with China Unicom and China Telecom Corp Ltd <0728.HK> in the world's biggest mobile phone market, which had 1.05 billion subscribers as of June.
China Mobile shares were down more than 3 percent on the day following the results, while China Unicom and China Telecom shares were steady.
China Mobile may be the biggest mobile carrier in China, but its rivals have a much bigger proportion of 3G users among their subscribers.
Just over a quarter of China Unicom's subscribers have 3G contracts, while at China Telecom it is 35 percent.
"We faced a number of severe challenges including the increase in mobile penetration, intensified competition, as well as the impact of new technologies and services that are replacing traditional communications services," said Chairman Xi Guohua in a statement accompanying the results.
Reflecting some of the competitive pressures, China Unicom introduced a budget calling scheme earlier this year in a few Chinese locations, such as Zhejiang province. It allows 2G users to make calls at a very low costs.
In the first half of the year, China Mobile's ARPU fell to 67 yuan from 70 yuan a year earlier.
"A price war in the Chinese telecom market is inevitable," Chris Hsu, China product manager at Allianz Global Investors Taiwan, which invests in China Mobile's shares.
"Handset subsidies have been pressuring all three carriers' ARPU," Hsu said. "Carrying iPhones usually incur costs for Chinese carriers, but the contracts and services bundled with these iPhones will slowly offset such costs."
China Mobile's home-grown 3G technology called TD-SCDMA is a stumbling block in clinching a deal with Apple, which does not support the technology in its iPhones. China Mobile's rivals use a different 3G technology supported by iPhones.
However, analysts speculate that chipmaker Qualcomm Inc
"In the event Qualcomm introduces TD-SCDMA chipsets, we believe China Mobile has to weigh the pros and cons of pushing aggressively on handsets with such chipsets embedded," Nomura analyst Danny Chu said in a report before the release of the half-year results.
"If China Mobile pushes such handsets aggressively among its high-end subscriber base in late 2012, the company may face a challenge when promoting TD-LTE handsets in 2013."
TD-LTE is a 4G mobile technology that China Mobile will be using for its network to try to better compete with other Chinese carriers.
Since the beginning of this year, China Mobile's Hong Kong-listed shares have risen about 20 percent. The Hong Kong Hang Seng Index has risen about 9 percent over the same period, while China Unicom and China Telecom have both fallen.
