First annual profit drop in 14 years spurs China Mobile spending on 4G

Mar 20 2014, 15:33 IST
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SummaryChina Mobile Ltd , the world's largest mobile carrier by subscribers, will spend more this year to bolster its 4G mobile network to counter its first annual profit drop in 14 years.

China Mobile Ltd , the world's largest mobile carrier by subscribers, will spend more this year to bolster its 4G mobile network to counter its first annual profit drop in 14 years.

The company blamed pressure from messaging services like the WeChat mobile app from Tencent Holdings Ltd and said on Thursday it will increase capital spending by 22 percent to 225.2 billion yuan ($36.34 billion). One-third of this, or 75 billion yuan, will go to expanding the high-speed 4G service it launched in December.

China Mobile also said it plans to sell 100 million 4G devices and have 50 million 4G users by the end of the year, following the January launch of Apple Inc's iPhone on its network.

Costly subsidies, particularly for the iPhone, and the plan to raise capital spending, combined with a proposed value-added tax for China's carriers, could all weigh heavily on China Mobile's future profits as it tries to reinvent itself in the mobile Internet era.

China Mobile is betting however that subscribers will use larger amounts of data as more people connect using applications like WeChat that are carried on a user's data plan to avoid the SMS charges that were formerly lucrative sources of revenue for mobile carriers.

To build up the network needed to create that shift, capital spending will peak in 2014 and 2015 before declining in 2016, said Chief Financial Officer Xue Taohai at a press briefing on Thursday.

China Mobile executives also hinted that sales of the iPhone, which analysts had expected to reach at least 17 million units in the first year after the launch, are well below expectations.

"Most of our 1.34 million 4G users are using an iPhone," said China Mobile Chairman Xi Guohua. "It's just been getting started for one or two months. So far it's hard to tell how that will affect our business," he said.

For all of 2013, China Mobile's net profit fell to 121.8 billion yuan, the first drop since 1999, compared with a 125 billion yuan SmartEstimate of 31 analysts surveyed by Thomson Reuters. Operating revenue last year rose 8.3 percent to 630.2 billion yuan.

China Mobile's profit also fell to 30.3 billion yuan in the quarter ended December, as operating revenue growth slowed to 5.3 percent, hitting 167.2 billion yuan from a peak growth rate of 14.5 percent just six months earlier.

While revenue from data services in 2013 rose 24 percent to 206.9 billion yuan, voice revenue,

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