China Mobile's First-Quarter Net Profit Rises 0.3% To CNY27.9 Billion

   By Paul Mozur 
 

BEIJING--China Mobile Ltd. (CHL) said Monday that its first-quarter net profit growth slowed as intensifying competition and growing sales of low-cost smartphones hurt profitability.

The slower rate of growth comes as the world's largest mobile carrier, with more than 700 million customers, is plowing almost $7 billion this year into building a new fourth-generation network as it fights to retain supremacy.

In the first quarter, the company faced "unprecedentedly intense market competition and more apparent substitution of traditional communication business by new technologies and new businesses," China Mobile Chairman Xi Guohua said in a statement.

Though China Mobile is far and away China's largest carrier, profit growth has slowed in part because the company was saddled with a proprietary third-generation Chinese standard not commonly used outside the country. Among other problems, that left China Mobile unable to offer popular phones like Apple Inc.'s (AAPL) iPhone. As Chinese consumers have rushed to buy touch-screen smartphones that run on 3G networks, they have increasingly bought services from rivals China Unicom (Hong Kong) Ltd. (CHU) and China Telecom Corp. (CHA).

It has also been hampered by a surge in the use of applications on smartphones, which has hit revenue growth from traditional text and voice services. Applications like Tencent Holdings Ltd.'s (0700.HK) WeChat allow users to send voice and text messages free of charge, leading many users to make fewer phone calls and send fewer traditional text messages.

Net profit for the three months ended March 31 rose to CNY27.9 billion from CNY27.8 billion a year earlier.

China Mobile's first-quarter operating revenue rose 5.7% to CNY134.7 billion from CNY127.5 billion a year earlier.

Although China Mobile has attracted more users to its third-generation services recently, analyst Victor Yip with UOBKayHian said in a note that it hasn't helped much to lift average revenue per user--a key metric for carriers. In the first quarter, average revenue per user fell to CNY63 from CNY65 in the same period a year earlier.

This is in part why China Mobile has been working to sign a deal with Apple to offer the iPhone. In January, Chairman Xi Guohua met Apple Chief Executive Tim Cook in Beijing and discussed cooperation, raising expectations that the carrier would soon begin offering the iPhone. China Mobile would be a key partner for Apple, which faces fierce competition from Samsung Electronics Co. (005930.SE) and other rivals offering smartphones powered by Google Inc.'s (GOOG) Android operating system.

Since then, the company has said it has no further updates on the talks with Apple.

Write to Paul Mozur at [e-mail]

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