China Mobile Profit Misses Estimates on Costs to Add Users

China Mobile Ltd. (941) profit rose 3.5 percent, missing analyst estimates, as the world’s biggest carrier by subscribers increased spending to attract users.

Net income climbed to 27.8 billion yuan ($4.4 billion) in the first quarter, from 26.9 billion yuan a year earlier, the carrier said in a statement to the Hong Kong Stock Exchange today. The median of four estimates by analysts in a Bloomberg News survey was 28.2 billion yuan.

Chief Executive Li Yue will boost capital expenditure to 131.9 billion yuan this year, from 128.5 billion yuan last year, the company said last month, as he upgrades networks and rolls out more Wi-Fi hotspots to help maintain the company’s lead in smartphone users over China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp.

“They are facing more extensive competition, so China Mobile is going to have to try hard to maintain their profitability level,” said Jim Tang, an analyst who rates the shares “neutral” at Shenyin Wanguo Securities Co. in Shanghai. “Definitely going forward, their margins will be under pressure.”

Sales rose 7.8 percent to 127.4 billion yuan, from 118.2 billion yuan. The median of four analyst estimates was 128.2 billion yuan.

In the first three months of this year, China Mobile added 17.6 million subscribers, for a total of 667.2 million, the company said today.

China Mobile rose 1.5 percent to close at HK$87.45 in Hong Kong trading. The stock has risen 15 percent this year.

Subscribers

Profit margins in the first quarter fell to 21.8 percent, from 22.7 percent a year earlier, as the company faced “increasingly intensified competition,” China Mobile said in today’s statement.

“There is some margin contraction because they are facing higher costs to retain customers,” Kelvin Ho, a Hong Kong-based analyst at Yuanta Securities Co., said before the earnings announcement. “Earnings growth will be a bit slow, as they are facing increasing competition.”

China Mobile had a total of 649.6 million mobile-phone subscribers at the end of last year, including 51.2 million users of the high-speed, third-generation service that smartphones use to access the Web, according to company data.

That outpaced China Unicom’s 199.7 million total subscribers and 40 million users of its 3G service. China Telecom was in third place with 126.5 million total subscribers.

Still, China Mobile’s share of all wireless users will drop to 64 percent this year from 69 percent in 2010, Barclays Capital Inc. analyst Anand Ramachandran estimated in a March 7 report. China Unicom’s share will rise to 22 percent from 20 percent over the same period, he estimates.

The company is counting on the move to a 4G network, based on technology known as TD-LTE, to stem a decline in market share among users who watch videos and play games on their phones. Its homegrown 3G network left it unable to offer popular handsets including Apple Inc. (AAPL)’s iPhone, which is now available from both China Unicom and China Telecom.

By investing to expand its Wi-Fi network, the company said last month it had been able to win 15 million iPhone users.

That helped the company almost triple wireless data traffic in the first quarter, as more subscribers used handsets to download movies and electronic books, the company said today.

China Mobile’s state-owned parent company this year will expand its 4G trial to nine cities, from six last year, and add 20,000 base stations to the 900 it tested last year, the company said last month. The total number of 4G base stations will exceed 200,000 next year, the company said.

China Mobile last month also said Chairman Wang Jianzhou retired after almost eight years at the company’s helm, and was replaced by Xi Guohua, completing a two-year transition to new leadership. Wang had relinquished the title of chief executive to Li in August 2010.

China Unicom and China Telecom will report earnings next week.

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

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.