The world's largest mobile carrier by subscribers has been vying with rival carriers China Telecom Corp. and China Unicom (Hong Kong) Ltd. to boost revenue per user by adding customers to its 3G--third-generation--mobile services. Such services offer higher data speeds at a higher price than 2G services. But China Mobile's dependence on homegrown 3G technology has put it at a disadvantage by limiting its access to popular 3G smartphones, which operate on a different platform in wider use globally.
To maintain its dominant market share, China Mobile, with more than 770 million mobile subscribers in China, planned to plow almost $7 billion last year into building a speedier 4G network. It also started offering Apple Inc.'s popular iPhones on its new 4G network in January. But the increased investment and higher handset subsidies are expected to weigh on its profitability, said analysts. Smaller rivals China Unicom and China Telecom, which operate on relatively more popular 3G mobile technology standards have sold iPhones for several years.
China Mobile's net profit for the 12 months ended Dec. 31 was 121.70 billion yuan ($19.6 billion), down from 129.30 billion yuan a year earlier. This marked the mobile giant's first annual earnings decline since 1999, when it had substantial write-offs on network equipment.
Revenue rose 8.3%, to 630.18 billion yuan from 581.84 billion yuan in 2012.
China's telecommunications carriers have focused on improving their networks to meet an increase in data traffic as more consumers replace basic cellphones with smartphones. China has already overtaken the U.S. as the world's biggest smartphone market, and mobile-data demand is expected to rise.
The company's results contrast with the increase in full-year earnings reported by China Unicom and China Telecom, which continue to attract high-value mobile customers from market leader China Mobile.
A surge in the use of some smartphone applications has also undercut the carrier's revenue from text and voice services. Applications such as Tencent Holdings Ltd.'s WeChat, for example, allow users to send voice and text messages free.
In addition to its struggles to compete with smaller carriers and new smartphone applications, China Mobile is under pressure from the Chinese government. The dominant mobile carrier is expected to receive smaller interconnection fees from the smaller carriers beginning this year, as part of the government's effort to promote competition.