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China Mobile profit drops amid rising costs, instant chat rivalry

Chinese operator posts its sharpest profit dip by 16 percent in fourth-quarter 2013 to 30.2 billion yuan, driven down by rising infrastructure costs and device subsidies as well as growing adoption of mobile chat services.
Written by Eileen Yu, Senior Contributing Editor

China Mobile has recorded its biggest dip in profit in over decade, as the world's largest telco continues to face rising infrastructure costs and increasing pressures from mobile chat services as well as iPhone subsidies. Impending government regulations aren't helping either. 

The Chinese carrier saw its fourth-quarter 2013 net income dip 16 percent to 30.2 billion yuan (US$4.9 billion), below the analyst estimates of 33.4 billion yuan, Bloomberg reported Thursday, noting that this marked the company's sharpest profit drop since 1999. 

Sales for the quarter climbed 10 percent to 167.2 billion yuan (US$27.15 billion) from 151.8 billion yuan (US$24.65 billion) the previous year, beating Bloomberg analyst estimates of 156.1 billion yuan. 

For the whole year, the Chinese carrier saw its operating revenue increase 8.3 percent to 630.2 billion yuan (US$102.32 billion), with telecommunications services contributing 590.8 billion yuan (US$95.92 billion), according to China Mobile. Net income fell 5.2 percent to 240.4 billion yuan (US$39.03 billion), while it grew its subscriber base by 8 percent to 767 million last year. As of end-February 2014, its subscribers totaled 775.6 million.

Competition from WeChat slash the telco's SMS/text revenue by 6.5 percent last year, China Mobile CEO Li Yue told reporters in Hong Kong. The company's CFO Xue Taohai noted that traditional text services contributed 7 percent of sales last year, compared to 7.9 percent the year before and 8.8 percent in 2011. 

Citing Hong Kong-based analyst at Guotai Junan Securities, Ricky Lai, the Bloomberg report said an increasing number of consumers are turning to mobile messaging apps, specifically WeChat, instead of traditional telco services. He noted that this trend would continue and have increasingly significant impact on telco revenues.

In addition, China Mobile had to spend significant money on handset subsidies to boost subscriber growth, Lai said.  

The Chinese operator began offering Apple iPhones on its network this January, pushing up its cost of subsidizing smartphones including the Apple device by at least 20 percent to 36 billion yuan (US$5.84 billion) this year, from 30 billion yuan (US$4.87 billion) last year, Bloomberg reported, citing JI Asia's estimates. 

Xue said at the media conference: "This is our first year with the iPhone so we are increasing the level of spending on subsidies. This will establish a good foundation for our long-term development." 

China Mobile is also expected to spend as much as 82 billion yuan (US$13.31 billion) to deploy its 4G network, touted to be the world's biggest, by the end of this year. The investment will include 500,000 base stations and other infrastructure rollout across 340 cities by end-2014, in addition to Beijing, Shanghai, and 14 other cities where 4G access was turned on last year. The telco expects to sell more than 100 million LTE devices, which it said would be heavily subsidized. 

In his statement on the company's 2013 results, China Mobile Chairman Xi Guohua said: "We face challenges brought about by an accelerated substitution effect in the traditional communications business by internet services, fiercer competition among traditional operators...all of which has put considerable pressure on the group's value growth."

Xi noted that the Chinese government was also tweaking its policies related to inter-connectivity, mobile business resale, and mobile number portability, adding these would further impact China Mobile's development. 

He said the the operator planned to address the various challenges by focusing on emerging trends in mobile internet, internet TV, Internet of Things, and cloud computing, among others. 



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