China Mobile hits profit slump amid competition, new projects

China Mobile Ltd's booth at the 3-15 International Consumer Goods Exhibition in Dalian on March 13. Provided to China Daily

China Mobile Ltd, the world's largest telecom carrier by subscribers, experienced its first annual net profit decline in more than a decade after the company invested heavily in mobile network projects and was put under pressure by Internet companies.

At a news conference in Hong Kong on Thursday, China Mobile said its revenue reached 630 billion yuan ($101 billion) in 2013, up 8.3 percent year on year.

But the company's net income was dragged down by a disappointing second half; it fell by 5.9 percent from the previous year to 121.7 billion yuan.

China Mobile's shares on the Hong Kong stock exchange dropped by 3.6 percent to HK$67 ($8.63) per share at the market's close on Thursday. During the day, the company's stock was traded at HK$66.55 per share, its lowest point in five years.

China Mobile's profit growth rate has fluctuated greatly in the past decade. The Chinese telecom operator enjoyed double-digit growth in terms of net income between 2004 and 2008, thanks to major expansions to the country's vast rural areas.

In 2007, China Mobile recorded its highest annual net profit growth rate of 32 percent.

But the figure dropped to single digits in 2009 and in the ensuing years, it hovered at or below 5 percent.

China Mobile attributed the weak performance to the effects of over-the-top (OTT) products, such as WeChat, on traditional voice and text messaging businesses, along with a more saturated telecom market with fiercer competition.

Other factors, including hefty investments in building a speedier fourth-generation (4G) mobile network and handset subsidies for flagship smartphone models such as Apple Inc's iPhone devices, all played a role in squeezing China Mobile's net profit.

Xi Guohua, chairman of China Mobile, said, "China Mobile will vigorously push forward the development of 4G service and will lower the 4G user threshold."

Since China Mobile was granted a 4G (TD-LTE) license last December, the company has taken the lead in launching 4G commercial services. It said the 4G business has been "positively received by its customers" and revealed that about 1.34 million people had subscribed to its 4G service by February.

The company said it plans to build the world's largest 4G network, with 500,000 base stations, that will cover every city, key village and urban area in counties by the end of 2014.

But the foreseeable future for China Mobile is not rosy, many analysts said, since the company has no choice but to spend a lot on both network construction projects and handset subsidies.

Meanwhile, outside pressure coming from Internet companies will only get worse, said Sandy Shen, telecom analyst with Gartner Inc.

"Trends show more people are likely to stick to instant-messaging mobile applications such as WeChat and that few of them will go back to rely on traditional voice and text messaging services," Shen said.

But Xiang Ligang, a Beijing-based telecom expert, said it may be a good thing for China Mobile to see a reduced net profit.

"If China Mobile gives up the mind-set of always pursuing an extraordinary performance, it will stop pushing its employees too much, and stop imposing so much pressure on the industry, which causes abnormal competition in the market."