UPDATE 2-China Mobile Q2 beats forecasts, but rivals loom

(Adds details and analyst comments)

By Joseph Chaney

HONG KONG Aug 27 (Reuters) - China Mobile (0941.HK), the world's top wireless operator by subscribers. beat forecasts with a 51 percent rise in quarterly profit, as it sought out new users from rural areas, sending its shares up 4 percent.

But China Mobile faces increasing competition in a shifting telecoms landscape, and pressure on traditional voice margins. As the government overhauls the world's largest telecoms industry, China Mobile and rival Unicom (0762.HK) are shifting their focus to poorer rural areas as major cities become saturated.

Beijing unveiled in May a sweeping industry reshuffle that will see the creation of two full-service competitors to China Mobile via mergers and acquisitions. China Mobile is expected to carry the burden of developing an untested, homegrown 3G service.

Analysts worry that China Mobile is saddled with a duty to build a network based on China's Time Division Synchronous Code Division Multiple Access (TD-SCDMA) technology, when rivals China Telecom (0728.HK), Unicom and Netcom (0906.HK) get to develop more advanced and globally accepted standards.

Longer-term prospects for China's mobile operators depend on when third-generation (3G) technology takes off, as the arrival of 3G -- which enables video streaming and faster Internet access on phones -- will open new sources of revenue.

"TD-SCDMA as China Mobile's only 3G option presents value chain inferiority in the 3G era," Merrill Lynch analyst Cynthia Meng said.

China Mobile posted April-June net profit of 30.7 billion yuan ($4.48 billion) versus 20.34 billion yuan a year ago, according to Reuters calculations of previously reported figures, its best quarterly growth in over four years.

That result beat an average forecast of 27.66 billion yuan according to five analysts polled by Reuters.

China Mobile shares rose 4 percent to their highest in more than two weeks. The stock had dropped 9.5 percent in April-June, lagging the Hang Seng index's .HSI 3.3 percent fall.

Revenue from "value-added" services grew 26.4 percent to about 53 billion yuan. China Mobile and its competitors are expanding basic services with music and news offerings.

But average revenue per user (ARPU), a key performance indicator, steadied at 84 yuan per month at the end of June from 82 yuan at end-March, but was down from 88 yuan a year earlier as new users tended to be from poorer rural areas.

Margins on earnings before interest, tax, depreciation, and amortisation (EBITDA) dipped to 53.1 percent from 53.5 percent in the first quarter.

For a full earnings statement, click: here 80827113.pdf

SLOWING DEMAND?

China Mobile added 45.25 million new subscribers during the first half, bringing the total to 415 million -- more people than there are in the United States and Germany combined.

But the speed of new subscriptions could be slowing. The firm added 7.11 million mobile subscribers in July, down 6 percent from the previous month, according to CLSA.

"The softer growth may be due to the Olympics as there were less subscriber promotions with more money diverted to brand advertising," analysts at CLSA said in a research note.

"It's unlikely the slowing economy had a major impact on July data, but we may have to trim our industry (subscriber) forecast for the year," CLSA said.

That, plus the uncertainty of China's ongoing sector revamp, has been an overhang on the shares.

Unicom will buy Netcom, the smaller of China's two fixed-line carriers, and sell its smaller Code Division Multiple Access network to fixed-line leader China Telecom (CHA.N), creating new mobile competitors to China Mobile. ($1=6.849 Yuan) (Editing by Edwin Chan and Lincoln Feast)