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Profits squeezed in Chinese telecoms
Published on: 2009-10-21
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Fierce competition is continuing to squeeze profitability in the Chinese telecoms sector.

China Mobile, the world’s largest mobile operator by subscribers, on Tuesday reported flat net earnings for the third quarter.

The slide in net profits accelerated at China Telecom, its smaller challenger.

China Mobile’s net income for the three months to September 30 increased 2.8 per cent to Rmb28.64bn ($4.19bn), reversing a slight drop in the second quarter but continuing the sharp slowdown in profitability from the first half.

China Telecom saw its third-quarter net earnings slide 48 per cent from a year earlier to Rmb2.39bn, an even steeper drop than in the first half.

The weaker profits come as the country’s three mobile operators are in the middle of a costly roll-out of third-generation networks and a battle over subscribers following a government-prescribed industry shake-up last year.

At the same time, adding new subscribers no longer results in revenue growth as steep as in the past as urban areas are fully penetrated and the operators have to tap rural residents who have less to spend.

“As new users are mainly low-usage customers, and as new tariffs and sales-and-marketing schemes are gradually rolled out, average revenue per user and average revenue per minute of usage showed a decrease, while voice usage volume was stimulated,” China Mobile said.

China Telecom, the country’s largest fixed-line operator, which started mobile services only in the wake of last year’s restructuring, said its profits fell because mobile services are increasingly replacing wireline services.

It also needs to spend more to poach mobile subscribers from China Mobile and China Unicom, its other larger rival.

China Mobile said average revenue per user was Rmb75, down from Rmb83 during the same period last year.

All three mobile operators have seen marketing costs and network investment jump as they build their 3G networks and try to lure high-end customers into switching to 3G contracts.

China Mobile has lined up handset makers to develop the OPhone, a cell phone based on a customised platform using Google’s Android software.

China Unicom, which ranks second among the three operators, will start selling subsidised iPhones to its subscribers on October 30.

China Telecom returned to being the most aggressive among the three operators last month, picking up almost 32 per cent of all new subscribers, up from 26 per cent in August.

In contrast, China Unicom took just 10 per cent of new subscribers in September, in line with the past six months.

China Mobile accounted for 58 per cent of all new subscribers last month, down from 65 per cent a month earlier.

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