U.S. News

China Mobile Second-Quarter Profit Jumps 28%, Margins Sliced


China Mobile, the world's largest wireless operator, posted a better-than-expected 28% jump in quarterly earnings as more users switched to mobile phones, despite sacrificing margins to woo poorer rural customers.

The firm and rival China Unicom are slugging it out to sign up poorer customers in smaller cities and the countryside, with subscriber growth slowing in the world's largest telecommunications arena -- chipping away at margins.

China Mobile posted April-June net profit of 20.34 billion yuan (US$2.68 billion) versus 15.84 billion yuan a year earlier, based on Reuters calculations from first-half earnings.

The result just exceeded an average forecast for 19.195 billion yuan, according to seven analysts polled by Reuters Estimates. The firm remained upbeat on its forays into the countryside.

"In the second half of 2007, we will continue to focus on exploring rural markets, expanding value-added services and optimizing our network to provide strong support for future growth," it said in a statement.

Shares in China Mobile rose 18% in the second quarter, compared with Unicom's near 20% gain. It trades at 21 times estimated earnings, compared with around 14 times for Vodafone and NTT DoCoMo's 15.5, according to Reuters Estimates.

China Mobile is expected to post an 18% gain in full-year net profit to 77.9 billion yuan, according to an average of 24 analysts' forecasts on Reuters Estimates -- a mild slowdown from a 23% rise in 2006.

The longer-term prospects for China's mobile operators depend on when the country's homegrown third-generation (3G) technology takes off, as the arrival of 3G -- which will offer faster Internet access and improved video streaming -- may open up new sources of revenue for operators.

Most analysts expect China to issue its 3G licenses before the 2008 Beijing Olympics, but some now predict licenses will not be handed out until as late as 2009.

To spur usage, China Mobile said this year one of its units would allow new subscribers to receive free incoming local calls, potentially trimming average revenue per user in the short term.