Aug. 27 (Bloomberg) -- China Mobile Ltd., the world's biggest phone company by market value, increased its second- quarter profit by 51 percent, more than analysts estimated, after cutting prices to attract users.

Net income jumped to a record 30.8 billion yuan ($4.5 billion) from last year's 20.3 billion yuan, according to figures derived from first-half earnings reported by the Beijing-based company today. The shares rose after profit beat the 28.3 billion yuan median of seven analyst estimates in a Bloomberg survey.

China Mobile earned double the estimated profits at its three biggest rivals combined as price cuts helped the company widen its lead in the world's largest telecommunications market. The operator added 22.7 million customers, more than Australia's population, before a government-led plan to merge smaller carriers to boost competition.

``China Mobile will continue to dominate the mobile sector,'' said Wong Soon-Tong, fund manager at Singapore's UOB Asset Management Ltd., an owner of the phone company's stock. ``Competition will increase, but a serious challenger won't emerge in the short term.''

China Mobile shares rose 3.5 percent to close at HK$96.55 in Hong Kong. The stock fell 28 percent as of yesterday from May 23, wiping out $94.5 billion in market value. At the time, China began disclosing details of its plan for three of the smaller phone companies to combine into two to compete against the industry leader.

Market Capitalization

Under the Chinese government plan, China Unicom Ltd., the second-biggest mobile carrier, will buy fixed-line rival China Netcom Group Corp. after selling the smaller of its two mobile- phone operations to China Telecom Corp., creating two entities offering Internet and wireless connections in the country.

China Mobile had a market capitalization of $240 billion as of yesterday, 33 percent more than AT&T Inc., the world's second- largest phone company by value, and 77 percent higher than No. 3 Vodafone Group Plc.

China Mobile customers boosted average phone usage to 496 minutes in the first half, compared with 440 minutes a year earlier, taking advantage of lower fees. Average revenue per user, which measures the size of a phone bill, fell to 84 yuan per month, from 88 yuan a year earlier.

``Average user spending hasn't fallen as quickly as I anticipated, which indicates that call volumes are still holding up well,'' said Eric Wen, who rates China Mobile shares ``sell'' at Mainfirst Securities HK Ltd. in Hong Kong. ``This is good for profitability.''

Cut Prices

The government asked China Mobile and China Unicom in February to cut prices of long-distance domestic calls by as much as 50 percent. The move contributed to a 20 percent fall in inter-region call volumes for fixed-line carriers in the second quarter, UBS AG analyst Wang Jinjin wrote in a Aug. 8 report, citing industry data.

Sales rose 16 percent to 103.4 billion yuan. Rainie Lei, a company spokeswoman, declined to comment on the derived figures.

First-half earnings before interest, taxes, depreciation and amortization, or ebitda, a measure of operating profitability, climbed 16 percent to 104.4 billion yuan, China Mobile said. Ebitda as a percentage of sales narrowed to 53.1 percent from 53.9 percent last year.

``The price cuts affected the company's profitability in the second quarter,'' Chief Financial Officer Xue Taohai told reporters at a Hong Kong briefing today.

Value-Added Services

Chairman Wang Jianzhou has increased the company's offering of non-voice services including messaging and games to counter lower profitability from cuts in call charges. Value-added services accounted for 27 percent of first-half revenue, an increase of 1.3 percentage points from a year earlier, the statement said.

China Mobile will seek ``quality telecommunications assets as investment opportunities,'' the company said today. The wireless carrier's only previous transaction outside its home market was the purchase of Hong Kong's China Resources Peoples Telephone Co. in 2006.

``We will remain cautious in our approach to overseas acquisitions, as we believe prices of emerging-market phone assets are still very high,'' Wang said at the briefing today.

China Unicom added 3.73 million subscribers in the three months ended June, or less than one-sixth the gains at China Mobile. The bigger carrier increased subscribers by a further 7.1 million last month for a total of 421.7 million at the end of July.

Third-generation

On Aug. 25, Unicom increased second-quarter profit to 2.4 billion yuan, or 92 percent less than earnings at China Mobile. Netcom's first-half profit rose 12 percent to 5.88 billion yuan, as higher sales of broadband Internet connections helped offset falling fixed-line income.

China Telecom, Netcom's larger fixed-line phone rival, may report tomorrow that second-quarter profit rose 1.2 percent to 5.75 billion yuan, according the Bloomberg survey of analysts.

Unicom will almost double 2008 capital spending on wireless networks r to 35 billion yuan and invest a further 100 billion yuan in 2009 and 2010 to offer third-generation services. China Telecom's parent last month said it will invest at least 80 billion yuan over three years in its wireless network.

China Mobile's 2008 capital spending may increase to as much as 137 billion yuan, 8 percent more than the company previously projected, as it expands networks in rural areas, Wang said today.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

Last Updated: August 27, 2008 06:11 EDT