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The latest operational and financial data from China Mobile suggests that the world’s largest mobile operator is feeling the effects of the global downturn and an increasingly competitive marketplace, while its new high-speed network has yet to significantly impact the bottom line.
China Mobile’s net income for the first half of the year (1H09) came in at CNY55.3 billion (US$8 billion), a rise of just 1.4 percent from CNY54.1 billion a year ago (1H08), and the firm’s slowest growth in interim profit since it listed in 1997. Revenues reached CNY212.9 billion, up 8.9 percent a year ago, but a decline from the second half of 2008 (2H08), marking China Mobile’s first decline in revenue for several years (see chart). ARPU has also been in gradual decline for some time, dropping from CNY84 to CNY75 between 1H08 and 1H09.
Customer growth by the end of 1H09 had risen by 18.9 percent over the year to 493 million. This represents net additions of 35.9 million – a 66 percent market share – but is significantly below the 45.3 million added in 1H08, when the operator commanded an 85 percent share of net additions. In the interim period, the reorganisation in China’s telecoms sector has been completed, a process that served to create two strong competitors for the market leader in the form of China Unicom and China Telecom. China Mobile admitted in its 1H09 earnings report that the new competitive landscape had been a factor in its decline in domestic market share (net additions) during the period.
The operator remains heavily reliant on voice for revenue. Total voice revenues rose from CNY142.8 billion to CNY153 billion, accounting for 71.9 percent of revenue in 2H09, down slightly from 73 percent a year earlier. However, average voice revenue per minute declined from CNY0.123 to CNY0.110, reflecting a decline in China Mobile’s average voice tariffs due to increased competition and the fact that many of its new additions are lower usage customers. Total voice usage over the year grew 19.5 percent to 1,387 billion minutes.
Growth in non-voice revenue increased 13.7 percent to CNY59.9 billion, accounting for 28.1 percent of total revenue, up from 27 percent a year ago. SMS was the largest contributor (generating revenue of CNY26.6 billion), though China Mobile also highlighted rises in Color Ring back revenue (up 10 percent to CNY7 billion), WAP (up 39 percent to CNY7.3 billion) and MMS (up 22.5 percent to CNY1.7 billion).
The first half of 2009 also saw China Mobile (and its competitors) roll-out their first commercial high-speed networks. China Mobile – which is using China’s homegrown TD-SCDMA standard – had just under a million (959,000) subscribers on its new network by the end of June. This represents less than 1 percent of its total customer base. China Mobile aims to expand its TD-SCDMA network – which is branded ‘G3’ – to 238 cities by year-end and all major cities by 2011. The operator hopes to have 300 TD-SCDMA-compatible devices available in the marketplace by this year with a number of high-profile handsets scheduled to launch this quarter.
As well as enabling consumer-focused mobile data services such as video, gaming, mobile Internet and music, China Mobile is also using the network as the foundation for its ‘wireless cities’ initiative. The initiative aims to offer an array of mobile broadband services to urban areas in collaboration with municipal governments.
Matt Ablott, Analyst, Wireless Intelligence
“China Mobile has arguably been the most aggressive of the Chinese operators in rolling out and promoting new high-speed network services, but it may be some time before they begin to generate significant revenue. It also faces intensifying competition in 3G from reinvigorated rivals China Unicom and China Telecom, which are both rolling out their rival 3G networks in the newly competitive environment made possible by last year’s restructuring. However, as we forecast at the beginning of the year, total connections across all three 3G networks will be below many expectations, reaching around 16 million by the end of 2010, and accounting for just under 2 percent of all connections. Market shares between the three operators on the new networks is likely to be in line with current trends. Meanwhile, overall connections growth at China Mobile remains healthy, but there are signs that certain large cities are fast approaching saturation and evidence that a growing proportion of new customer additions are rural and less affluent, which is affecting ARPU (and the EBITDA margin). The availability of affordable, mass-market TD-SCDMA devices and the development of the TD-SCDMA ecosystem will be the key to maximising the revenue potential of the new high-speed network moving forward.