China Mobile 2007 EBITDA Up 21.6% on Solid Subscriber Gains

For the 2007 year, China Mobile reported operating revenues of 356.959 billion renminbi (US$50.5 billion), representing an increase of 20.9% year-on-year (y/y). Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 21.6% y/y to 194.003 billion renminbi, while the EBITDA margin reached 54.3%, up from 54.0% in 2006. Net profit rose by 31.9% y/y to 87.062 billion renminbi, while net profit margin reached 24.4%, up from 22.4% in 2006.

During 2007, the total number of China Mobile's subscribers grew by a record net increase of 68.107 million subscribers to 369.339 million at the year-end—the average monthly net addition exceeded 5.67 million. The operator further expanded its subscriber market share to 69% at end-2007, from 68% at end-2006 and 66% at end-2005. Average minutes of usage per user per month (MoU) reached 455 minutes, up from 381 minutes in 2006. Average revenue per user per month (ARPU) stood at 89 renminbi, slightly lower than the level of 90 renminbi reported in 2005 and 2006.

Outlook and Implications

China Mobile's strong financial result was on the back of robust subscriber expansion and voice usage, as well as rapid growth of value-added services.

• Rural Expansion: As a result of the rising mobile penetration in the country (41.6% at end-2007), China Mobile's subscriber growth accelerated in 2007, largely thanks to its aggressive expansion into the rural markets. The company noted that the rural market has become an important source of new customers and an engine for revenue growth. Rural customers contributed about half of China Mobile's net subscriber additions in 2007. The operator's success in penetrating into the rural markets will be one that operators in other emerging markets, such as India and Indonesia, would desire to imitate.
• Value-Added Services: China Mobile also reported rapid growth of value-added services, the revenues of which grew by 32.2% y/y and accounted for 25.7% of the operator's total operating revenues in 2007. Revenues from SMS services rose by 30.2% y/y and contributed to 46% of the total value-added revenues. The operator also reported positive growth in "Colour Ring", WAP and MMS businesses. The mobile music business has also started to gain popularity, with ‘‘Wireless Music Club’’ senior members reaching 35.46 million at the end of 2007. The operator's "Mobile Paper" news and information service had 23.55 million paying subscribers and the ‘‘Fetion’’ instant messaging service captured more than 12.81 million active subscribers at the end of 2007. China Mobile said it intends to continue providing innovative value-added services based on a carefully defined strategic plan and build a good product development structure and momentum for future growth.
• Corporate Segment: Meanwhile, China Mobile also actively developed the corporate customer market, promoting informatisation and industry-specific application solutions to corporate customers. In 2007, the operator enhanced its corporate customer operation system and extended its product and service area; besides further promoting the Agricultural Information Service, Campus Information Service and Police Information Service, it introduced new Financial Information Express and Trade & Business Express services. As of end-2007, China Mobile's corporate customer base had reached 2.12 million companies and this will provide a solid foundation for its future growth in the corporate segment.
• Potential Impact of Industry Restructuring: China Mobile's chairman and chief executive officer, Wang Jianzhou, said in a statement that the continued rapid growth in China’s economy, rising consumer purchasing power, the development of the rural economy and the acceleration of informatisation throughout the country is creating a huge market and new opportunities for the company. However, China Mobile also expects to face new challenges as the Chinese government reforms the telecoms industry and the competitive environment undergoes changes. The state media has reported the possibility of China Mobile merging with China Tietong, the country’s third-largest fixed-line operator, China Telecom with China Unicom’s CDMA network assets, and China Netcom with China Unicom’s GSM network assets. All three resulting telcos will be integrated operators, offering a range of services from fixed to mobile and internet. If the plan goes ahead, China Mobile will face increased competition in the mobile market following the creation of a third mobile operator through the splitting up of China Unicom's mobile network assets and customer base between China Telecom and China Netcom, the country's two dominant fixed-line operators. However, China Mobile will remain the strongest mobile player for some time, as China Telecom and China Netcom will have heavy investment requirements in order to compete on a nationwide scale. They will also have to compete with China's Mobile's strong brand name and premium service image. China Mobile said it will consolidate its overall competitiveness and adapt rapidly to changes in the operational environment. The company said it is also readying itself for the introduction of next-generation mobile network and technology, including closely monitoring the Long Term Evolution (LTE) network technology. Through gaining China Tietong's fixed assets, China Mobile will also be able to provide a range of new services, including fixed-line voice, broadband internet and IP-based services to residential and business customers. However, China Mobile will not become a major player in the fixed-line and broadband market immediately, as China Tietong's current network assets and subscriber base are far less extensive than those of China Netcom and China Telecom.