China Mobile Ltd. (941), the world’s largest phone company by subscribers, reported its weakest profit growth in three quarters as higher costs eroded gains from an increase in users of high-speed network services.
Net income rose to 27.9 billion yuan ($4.5 billion) in the first quarter, from 27.8 billion yuan a year earlier, the Beijing-based operator said in a statement to the Hong Kong Stock Exchange yesterday. Profit was expected to be 28 billion yuan, based on the median of five analysts’ estimates compiled by Bloomberg News.
Chief Executive Officer Li Yue is fighting to maintain China Mobile’s lead in smartphone users over China Unicom Hong Kong Ltd. (762) and China Telecom Corp. by subsidizing handsets for third-generation data users and adding fourth-generation services. The company said last month it will bear costs for the TD-LTE network, or 4G network, previously borne by its state-owned parent, boosting the listed unit’s capital spending 49 percent to 190.2 billion yuan this year.
“The results were a bit lower than our expectations,” Ricky Lai, a Hong Kong-based analyst with Guotai Junan International Holdings Ltd., said by e-mail. “The heavy handset subsidies strategy in 2013, with the total estimated at 27 billion yuan, will worsen its profit margins.”
Lai said he had expected net income of 32.2 billion yuan for the period.
Sales rose 5.7 percent to 134.7 billion yuan in the quarter. The company was expected to report sales of 134.1 billion yuan, according to the median estimate in the Bloomberg survey.
The profit growth in the period was the weakest since the second quarter of 2012, when the company posted a decline.
While 3G users are on the rise, China Mobile isn’t seeing the full benefit because of the “increasing cannibalization effect” of free instant-messaging apps such as WeChat from Tencent Holdings Ltd. (700) over traditionally profitable services such as text messages, Lai said.
China Mobile added 26.4 million 3G users during the quarter for a total of 114.4 million subscribers, according to data the company released yesterday. Still, China Mobile’s share of the nation’s total 1.13 billion wireless users fell to 64 percent in February from 66 percent a year earlier, according to data released last month.
To contact the editor responsible for this story: Michael Tighe at firstname.lastname@example.org