UPDATE 1-China Mobile profit disappoints as mobile users opt for apps

Mon Oct 21, 2013 5:54am EDT

* Q3 net profit 28 bln yuan, down 9 pct

* Net profit for Jan-Sep 91.5 bln yuan, down 1.9 pct

* Subscribers up 0.6 pct to 755 mln

* 3G subscribers up 7.13 pct to 170 mln

By Paul Carsten

BEIJING, Oct 21 (Reuters) - China Mobile Ltd missed expectations on Monday with a nearly 9 percent drop in third-quarter net profit as social messaging applications ate into the company's traditional revenue streams.

The applications send messages using a subscriber's data plan, thus depriving telecom operators of the ability to charge for SMS messages.

Third-quarter net profit fell to 28.37 billion yuan ($4.65 billion) from 31.1 billion yuan in the same period last year, below analyst estimates of 30.72 billion yuan.

The company blamed its "severe difficulties and challenges" on a tougher competitive environment and also blamed so-called "Over The Top (OTT) products" like Tencent Holdings' WeChat social messaging app and those from other mobile carriers.

OTT products like WeChat, which has 236 million active users, are disrupting the traditional business model of network carriers as smartphone penetration rapidly increases. China currently has more than 460 million mobile Internet users, more than 370 million of whom are on 3G contracts.

China Mobile is betting its future growth on rolling out an expanded 4G network to reinvigorate its business after its slow, domestically-developed 3G standard compared unfavourably to faster offerings from China Unicom Hong Kong and China Telecom Corp.

The company said in March it is investing 41.7 billion yuan ($6.84 billion) to upgrade its homegrown 4G network, the licenses for which China's government is expected to give out by the end of the year along with those for the other 4G standards used by China Unicom Hong Kong and China Telecom Corp.

China Mobile is also expected to soon reach a deal with Apple Inc to distribute the new iPhone 5S and 5C handsets on its 4G network. This could help attract China Mobile customers into upgrading to 4G, and also provide a boost for Apple as it gets access to 750 million of China's 1.2 billion mobile subscribers.

3G SUBSCRIBERS INCREASE

China Mobile's net profit for the first nine months of the year was 91.5 billion yuan, down by 1.9 percent versus January-to-September last year.

China Mobile, the world's largest mobile carrier by subscribersincreased its 3G subscribers by 7.13 percent from September to August, but it has struggled to attract 3G users, who only accounting for roughly one-fifth of its total subscribers.

In August 40 percent of China Unicom Hong Kong's subscribers were on 3G and China Telecom Corp had 52 percent as 3G users.

The firm's January-to-September average revenue per user (ARPU), a standard industry measure of performance, fell to 66 yuan from 67 yuan a year earlier.

China Mobile shares have fallen 5.76 percent year-to-date against a 3.45 percent overall gain on the Hang Seng Index . China Unicom's have risen 2.74 percent and China Telecom's are down 3.94 percent for the same period.

China Mobile shares closed up 0.53 percent on Monday, edging out the Hang Seng Index's gain of 0.42 percent.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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