China Mobile Ltd (0941.HK) booked its lowest quarterly profit in five years as the world’s biggest mobile carrier by subscribers struggled to compete with mobile Internet applications offering services such as messaging.
China Mobile’s traditional revenue sources such as phone calls and short messaging services (SMS) have rapidly lost out to apps such as Tencent Holdings Ltd’s (0700.HK) popular WeChat, which allows smartphone users to communicate over data networks.
To capitalize on increased data demand – and recover higher-spending customers from rivals China Unicom Hong Kong Ltd (0762.HK) and China Telecom Corp Ltd (0728.HK) -China Mobile has been investing heavily in fourth-generation mobile networks.
The company complimented 4G’s faster connection speeds in the first quarter by starting sales of Apple Inc’s (AAPL.O) popular iPhone, to stem the flow of defectors turned off by China’s Mobile’s slower 3G network and lack of iPhone.
But the push towards data-fuelled mobile communications was not enough to offset the revenue squeezed by apps like WeChat, as net profit fell 9.5 percent to 25.24 billion yuan($4.05 billion) – China Mobile’s third straight quarterly profit drop. Operating revenue rose 7.8 percent to 154.83 billion yuan.
China Mobile “experienced severe challenges in its operations and development as the impact of mobile Internet on the traditional communications business became more evident,” said Chairman Xi Guohua in an earnings statement on Tuesday.
Shares of China Mobile have fallen 11 percent since the start of the year, compared with a 2.5 percent fall in the Hang Seng Index .HSI. Ahead of the results, they closed 0.1 percent lower, in line with the benchmark.
Growth could be on the horizon, according to analysts, after China Mobile added 5.47 million subscribers in March, the most in seven months. Its total of 781.1 million subscribers made up more than 60 percent of the country’s 1.25 billion.
“We believe many high value customers (many of which have SIMs with both Unicom and Mobile; or with Telecom and Mobile) will switch back to a single primary relationship with China Mobile, shifting growth momentum back to China Mobile,” wrote Chris Lane, a Hong Kong-based analyst with Sanford C. Bernstein, in an April 11 research note.
The main attraction for the returning customers would be China Mobile’s “extensive” 4G rollout, Lane said.
Reuters
