China Mobile Unexpectedly Boosts Annual Spend to $20 Billion

China Mobile Ltd. (941), the world’s biggest wireless carrier by users, unexpectedly said it will boost capital spending 6.5 percent this year to meet demand for data from users downloading video and music on their phones.

China Mobile aims to spend as much as 132.4 billion yuan ($20.1 billion) in 2011, compared with 124.3 billion yuan last year, Chairman Wang Jianzhou said at a press conference in Hong Kong today. Analysts, including Michael Meng of BOCI Research Ltd., had expected the Beijing-based company to reduce capital spending this year.

The company is increasing spending after posting a better- than-expected net income in the fourth quarter. Wang is expanding the range of data services China Mobile offers over its mobile network beyond traditional short message service texting as he seeks to maintain the lead over rivals China Unicom Hong Kong) Ltd. and China Telecom Corp.

The capital spending guidance “was a negative coming out of the result,” Lisa Soh, a Hong Kong-based analyst at Macquarie Group Ltd. which rates the stock “outperform,” said in an e-mail. Soh said she was surprised by the company’s projection, which was 35 percent more than the 98 billion yuan she estimated.

Shares Fall

China Mobile fell 1.7 percent to HK$71.05 at the 4 p.m. close of trading in Hong Kong, after earlier climbing as much as 1.5 percent. The stock has dropped 8 percent this year.

BOCI’s Meng had forecast capital spending at China Mobile may drop to 118 billion yuan this year in a March 9 report. Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co., said today he’d expected the 2011 expenditure at 98 billion yuan.

“To expand our leading position and further develop high value-added services, we will increase our capital spending this year,” Wang told reporters today. “The value-added data business will be a significant source of future revenue growth for our company.”

Capital spending will remain above last year’s level in each of the next two years, Wang said. He projected spending of 130.4 billion yuan next year, and 125.5 billion yuan in the year after that.

“Free cash flow will be hurt,” Samsung’s Wuh said in an e-mail today. He had projected capital spending to drop to 83 billion yuan by next year. “Some investors had expected to see a cut in capex and higher dividends.”

Dividend Payout

China Mobile will keep its dividend payout ratio at 43 percent this year, unchanged from last year, the company said. The wireless carrier is “still in a position for very fast growth” and must invest in its networks to accommodate demand, Wang said.

Data services helped boost net income 3.7 percent to 32.4 billion yuan in the quarter ended Dec. 31, according to figures derived from full-year earnings reported by the company today. Profit was expected to be 31.8 billion yuan, according to the average of five analyst estimates compiled by Bloomberg News. Fourth-quarter sales rose 6 percent to 132.6 billion yuan.

China Mobile had a total of 584 million mobile-phone subscribers at the end of last year, including 20.7 million customers for the high-speed, third-generation service that smartphones use to surf the Web, the company said in February.

That compares with China Unicom’s 311.3 million total subscribers and 14.1 million users of its 3G service. China Telecom was in third place with 90.5 million subscribers.

Higher Subsidy

To continue attracting high-end data users, China Mobile will increase its subsidy for handsets by 15 percent to 17.5 billion yuan this year, Wang said. Value-added data such as the mobile music service “was an essential driver of total revenue growth” last year, accounting for 31 percent of operating revenue in 2010.

China Mobile has 35 million registered customers for its mobile applications offerings, who can select from 50,000 applications to download, the carrier said. By the end of last year, the site had recorded 110 million application downloads, according to a company statement.

Wang aims to keep China Mobile’s lead with heavy-data users by rolling out the country’s first fourth-generation network. The company in December received approval from the Ministry of Industry and Information Technology to begin a trial of its 4G TD-LTE network, and this month it added Beijing to the original six cities in the program: Shanghai, Hangzhou, Nanjing, Guangzhou, Shenzhen and Xiamen.

The trials will be primarily focused on high-speed data cards for notebook computers and won’t promote many new handsets for the system, Chief Executive Officer Li Yue said at today’s conference.

The trials will include network equipment from both Chinese and foreign suppliers, Li said. Chinese suppliers may include Huawei Technologies Co. and ZTE Corp. (000063) while overseas companies may include Ericsson AB, Nokia Siemens Networks and Alcatel- Lucent SA, he said.

To contact the Bloomberg News staff on this story: Edmond Lococo in Beijing at elococo@bloomberg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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