China Mobile profits hit by 4G investments, OTT competition

China Mobile has reported falling profits for the first nine months of the year, with investments in a 4G network and the cost of subsidizing smartphones taking a toll on the operator’s performance.

China’s biggest mobile operator by customer numbers flagged a 9.4% increase in revenue, to RMB463 billion ($76 billion), for the nine months ending September, but said profits slid by 1.9%, to RMB91.5 billion, over the same period.

China Mobile has reported falling profits for the first nine months of the year, with investments in a 4G network and the cost of subsidizing smartphones taking a toll on the operator’s performance.

China’s biggest mobile operator by customer numbers flagged a 9.4% increase in revenue, to RMB463 billion ($76 billion), for the nine months ending September, but said profits slid by 1.9%, to RMB91.5 billion, over the same period.

Like smaller rivals China Telecom (Beijing, China) and China Unicom (Beijing, China), the operator has been subsidizing smartphone devices in an effort to popularize 3G services, and its margins have taken a hit as a consequence.

Moreover, China Mobile’s (Beijing, China) decision to invest in a 3G technology largely unused outside China has come at a considerable cost.

The so-called TD-SCDMA standard experienced various teething problems on launch and remains incompatible with Apple’s iPhone handset, which both China Telecom and China Unicom have been using to attract customers at China Mobile’s expense.

Nevertheless, there is speculation that China Mobile will soon release a TD-SCDMA version of the iPhone, after Chinese authorities were reported to have issued requisite licenses to Apple (Cupertino, CA, USA) in September.

In the meantime, China Mobile has been spending heavily in preparation for a push on 4G services – something it acknowledged in its latest earnings statement.

“The acceleration of 4G license issuance will, on the one hand, create favorable conditions for the Group’s transformation and structural adjustment and, on the other hand, increase the pressure on the Group’s resource allocation,” it said.

China Mobile also blamed competition from so-called over-the-top players for the decline in profits over the first nine months of the year.

Average revenue per user failed to increase, despite a sharp rise in usage of mobile internet services, and the operator also noted a slight dip in average minutes of usage per user per month.

Although China Mobile signed up 31.6 million 3G customers between July and September, its overall customer base grew by just 15 million over the same period, indicating that most 3G business came from existing subscribers.

The operator now claims to serve more than 755 million customers in total, with about a fifth of those using 3G services.