On paper, China Mobile (00941.HK) is in a sweet spot after winning the right to sell Apple Inc.’s coveted devices in the mainland in December.
But the deal has come at a cost. It’s a big part of the reason the world’s largest mobile operator by users ended up with a 9.4 percent fall in first-quarter profit despite a 7.8 percent increase in revenue.
Subsidies for iPhones ate into the carrier’s bottom line at a time of intensifying competition. The revenue figures are particularly telling because they show that the company gained next to nothing from increased subscriber numbers.
The company could face further pressure on its earnings as capital spending on high-speed 4G network infrastructure kicks in later this year.
And that is only part of the challenge. As the country’s largest telecom company, China Mobile is responsible for building its 3G and 4G mobile network on a homegrown standard known as TD-SCDMA and TD-LTE, respectively.
In theory, China Mobile enjoys first-mover advantage over its two rivals — China Unicom (00762.HK) and China Telecom – after TD-LTE 4G licenses were issued in December, which allowed it to operate Apple iPhones.
But in reality, China Mobile could lose ground once China Unicom and China Telecom launch their own network based on the FDD-LTE standard, a more mature and more reliable technology that supports a wider range of best-in-class devices at lower cost.
Related companies are waiting to see how 4G will develop and what the implications of FDD-LTE might be.
Meanwhile, lines are being drawn that could decide which operator will end up with real advantage.
Tesla, the United States electric car maker that recently debuted the eponymous brand in China, got the ball rolling by picking China Unicom over China Mobile to provide in-car mobile technology.
That may not be a huge thing for China Mobile but deals like this, which could significantly impact long-term profitability, could signal the beginning of the end of its dominant market status.
It’s too early to say if Unicom has what it takes to overhaul the market, but it’s clear China’s No. 2 carrier is beginning to exert some pressure on China Mobile.
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