China Mobile shares down 6.3%

Bloomberg News Service

HONG KONG — China Mobile (Hong Kong) Ltd. first-half profit was a 10th less than expected as each of its 59 million cellular phone customers spent less.

Profit at the publicly traded unit of the country's biggest mobile-phone company rose to $1.7 billion.

But the spending of every added China Mobile customer is falling as the company buys networks in poorer provinces from its parent. The one in 10 people in China who have phones are wealthy. New clients are less affluent and most of them use cheaper prepaid cards.

"There is more room for average revenue per user to fall," said Stella Lau, managing director of East Asia Asset Management Ltd., which manages $500 million and owns China Mobile shares. "There is pressure for the government to introduce more competition to the mobile market."

China Mobile shares fell 6.3 percent after the earnings announcement. China Mobile shares dropped almost a fifth this year on concern about declining profit margins.

Monthly spending per customer was $19.75 in the first half, compared with an analysts' forecast of $22 and spending of $32.63 a month in the first half of 2000.

China Mobile's total sales jumped to $6.11 billion in the first half from $3.61 billion a year earlier. But revenue growth was slower than the pace of subscriber growth.

China Mobile operates in the country's 13 richest provinces and cities. The company bought seven networks from China Mobile Communications Corp. in October, boosting the subscriber base to 58.9 million at the end of June, from 45.1 million at the end of December and 22 million at the end of June 2000. It claims three-quarters of the market.

It's "still the fastest growing company on the planet in absolute subscriber terms," said Rohit Sobti, an analyst with Salomon Smith Barney.

China will be the fastest growing economy in Asia this year, with the government forecasting 7.5 percent expansion, driven by domestic consumption. With barely one in 10 people using a mobile phone, China last month surpassed the United States as the world's biggest wireless market, government statistics showed. China had 120.6 million wireless users at the end of July, compared with 120.1 million in the United States.

Larger-scale operation helped China Mobile squeeze bigger discounts from telecom equipment and handset suppliers, which face slowing demand in the United States and Europe and have slashed prices to gain a foothold in China.

The company said equipment prices fell 15 percent in the first half and its capital spending during the period was only $2.2 billion, 40 percent of the amount set aside for 2001.