China Mobile profit up 1.5% as 3G business struggles

Competition from over-the-top services and the deficiencies of its own third-generation (3G) mobile-phone technology are costing China Mobile dearly.

The biggest mobile-phone operator in China reported disappointing growth in net profit for the first half of the year of just 1.5%, to 62.2 billion yuan ($9.77 billion), compared with the same period of 2011.

As China’s vast market becomes flooded with handsets, revenues rose just 6.6% to 266.53 billion yuan, a much weaker rate of growth than in previous years.

Competition from over-the-top services and the deficiencies of its own third-generation (3G) mobile-phone technology are costing China Mobile dearly.

The biggest mobile-phone operator in China reported disappointing growth in net profit for the first half of the year of just 1.5%, to 62.2 billion yuan ($9.77 billion), compared with the same period of 2011.

As China’s vast market becomes flooded with handsets, revenues rose just 6.6% to 266.53 billion yuan, a much weaker rate of growth than in previous years.

In its earnings presentation, the operator notes changes in the business environment that include “rising mobile penetration with diminishing growth in the traditional communications market” and a “new focus of all-round competition for customer value”.

Disappointingly, though, each of the operator’s existing customers is spending less, on average, than in the first half of 2011—just 67 yuan a month, compared with 71 yuan last year.

Unlike rivals China Telecom and China Unicom, China Mobile is using a 3G standard—TD-SCDMA—that was developed within China and lacks global economies of scale.

Besides being incompatible with many of the world’s most stylish and popular devices, including Apple’s iPhone, TD-SCDMA has attracted negative publicity over its technical shortcomings. When China Mobile first launched the technology, many subscribers complained about dropped calls and the poor quality of services.

In the meantime, China Unicom has become Apple’s official partner in China.

China Mobile had signed up 67.08 million 3G customers by the end of the first half of 2012, more than either of its competitors but still less than 10% of its overall customer base of 683 million.

What’s more, many of those customers have been using internet services as a substitute for more expensive text messages and voice calls.

That trend has affected China Telecom and China Unicom as well, and is increasingly a worry for operators in other parts of the world.

China Mobile is now turning its attention to ‘4G’ technology. Unlike TD-SCDMA, however, the TD-LTE standard in which it is investing has support from operators in many other parts of the world.