April 20 (Bloomberg) -- China Mobile Ltd., the world’s biggest wireless carrier, reported its slowest quarterly profit growth in five years as the economy weakened and the company increased spending to protect market share.

First-quarter net income climbed 5.2 percent to 25.2 billion yuan ($3.7 billion) from 23.9 billion yuan a year earlier, the Beijing-based company said in a statement to the Hong Kong stock exchange today. That missed the 26.5 billion yuan median estimate of five analysts in a Bloomberg survey. Operating revenue rose 9.2 percent to 101.3 billion yuan.

China Mobile said intensifying competition and the global recession undermined earnings growth, as analysts project the company may report its first decline in annual profit in 10 years. Chairman Wang Jianzhou will increase handset subsidies and focus on less-profitable rural areas to maintain the company’s lead over China Telecom Corp. and China Unicom (Hong Kong) Ltd.

“The company is still very strong in the rural markets, but we are seeing the economic slowdown and competition impacting its business in the cities,” Steven Liu, who rates China Mobile “buy” at DBS Vickers Ltd. in Hong Kong, said before the results were announced. “The stock has been a laggard this year, but we think it will perform stronger as valuations are now very reasonable.”

China Mobile’s profit may rise to 117.71 billion yuan this year, from 112.8 billion yuan in 2008, according to the median of 10 analyst estimates in a Bloomberg survey. That would be the slowest growth in annual net income since the company reported a decline in 1999.

Shares Rose

China Mobile shares rose 0.4 percent to HK$74.30 in Hong Kong trading today before the announcement. The stock has declined 4.5 percent this year, compared with a 9.5 percent gain in the Hang Seng Index.

The growth in first-quarter net income was the slowest since profit rose 4.6 percent in the first quarter of 2004, according to data compiled by Bloomberg.

The phone carrier gained 19.91 million customers in the first three months for a total of 477.16 million at the end of March, more than the combined populations of the U.S. and Japan. Still, China Mobile added fewer subscribers than the 22.8 million it signed up a year earlier and 21.14 million it gained in the fourth quarter.

China’s economy expanded 6.1 percent in the first quarter, the slowest pace in almost 10 years, damping demand for phone services. Revenue in the telecommunications industry increased 2 percent to 128.9 billion yuan in the first two months, easing from the annual growth rate of 7 percent in 2008, according to data from the Ministry of Industry and Information Technology.

Bolstered Business

Farmers in 14 provinces will get discounts on purchases of electronics and appliances as part of the 4 trillion yuan government stimulus package announced in November. The subsidies have bolstered China Mobile’s business in rural areas this year as growth in urban areas slows, Wang said on March 3.

Rural areas, where phone users typically spend less on calls and data services, now supply most of China Mobile’s new customers, Chief Financial Officer Xue Taohai said last month.

The phone company’s earnings per subscriber declined in the first quarter as it added more customers in lower-income villages and towns. Average revenue per user fell to 73 yuan from 83 yuan in the last three months of 2008, according to the statement.

Earnings before interest, tax, depreciation and amortization, a gauge of a company’s cash flow, rose 7.7 percent to 53.38 billion yuan in the first three months, China Mobile said. Ebitda as a percentage of sales narrowed to 52.7 percent from 53.5 percent last year.

Industry Reorganization

China Telecom, which acquired the smaller of Unicom’s two mobile-phone units last year as part of a government-led industry reorganization, will expand its third-generation wireless services to 300 cities by July, Chairman Wang Xiaochu said last month. Unicom, which acquired China Netcom Group Corp. in the revamp, will start the higher-speed service next month, Chairman Chang Xiaobing said last month.

China Mobile will increase phone subsidies by about 25 percent to 10 billion yuan this year to counter rising competition and meet demand for 3G services, Wang said in January. The company will offer the high-speed service based on the Chinese-developed time-division synchronous code division multiple access technology in 238 cities by October, it said in January.

China Telecom and Unicom will use international technologies for their 3G services.

China Telecom, the country’s biggest fixed-line operator, today reported first-quarter profit fell 27 percent to 4.7 billion yuan, after the company increased spending to add mobile- phone users.

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

Last Updated: April 20, 2009 05:50 EDT