China Mobile profit drops for first time since 1999

China Mobile Ltd., the world’s biggest phone company by market value, had its first decline in profit since 1999 after subscriber growth slowed as competition intensified with .

Second-quarter net income fell to 30.1 billion yuan ($4.4bn) from 30.6bn yuan a year earlier, according to figures Bloomberg derived from first-half earnings reported by the Beijing-based company today. The carrier was expected to post profit of 31.1bn yuan, the median of five analysts estimates in a Bloomberg survey.

Average monthly phone bills declined 11 per cent as China Mobile cut prices and focused on lower-income rural areas after China Telecom Corp. was allowed to enter the wireless market. Chairman Wang Jianzhou raised spending on more lucrative high- speed services after Telecom and China Unicom (Hong Kong) Ltd. started offering the technology this year.

“China Mobile’s growth has slowed down quite significantly because of policy, and the new capex cycle,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Investment Trust Management, which oversees $100 billion in assets, including China Mobile shares. The phone company’s earnings may improve as network investments are lowered, Dan said.

Worst-Performing Stock

China Mobile, the worst-performing stock among the three Chinese phone carriers this year, rose 0.4 per cent to HK$83.35 as of 2:32 p.m. in Hong Kong after the earnings announcement, compared with a 1.9 per cent gain in the benchmark Hang Seng Index.

The stock has advanced 7.5 per cent this year, less than the 33 per cent increase in China Telecom, the country’s biggest fixed-line carrier, and 18 per cent increase in Unicom, the second-biggest domestic mobile-phone company.

China Mobile added 15.96 million users in the three months ended June 30, compared with 22.5 million a year earlier. The company had a total of 493 million subscribers at the end of July, more than the combined populations of the U.S. and Japan.

China Telecom, which bought the smaller of Unicom’s two mobile-phone divisions under a government-mandated reorganization last year, gained 6.4 million users in the newly acquired unit in the second quarter, 18 times the number of subscribers it added a year earlier, after starting third- generation services and boosting handset subsidies.

China Mobile’s second-quarter sales rose 8.9 per cent to 111.6bn yuan.

Upgrading Networks

Average revenue per user, an industry measure of the size of a phone bill, fell to 75 yuan a month in the first half, China Mobile said. That declined from 84 yuan a year earlier.

China Mobile last reported a profit decline in 1999, according to Bloomberg data.

China Mobile will offer third-generation services in 238 cities by October, the company said in January. Most of the carriers spending this year will be focused on upgrading networks to enable them to offer integrated 2G and 3G services, the company said in March.