China Mobile Ltd missed expectations on Monday with a nearly 9% 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 bln yuan ($4.65 bln) from 31.1 bln yuan in the same period last year, below analyst estimates of 30.72 bln 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 mln active users, are disrupting the traditional business model of network carriers as smartphone penetration rapidly increases. China currently has more than 460 mln mobile Internet users, more than 370 mln 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 bln yuan ($6.84 bln) 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 mln of China's 1.2 bln mobile subscribers.
China Mobile's net profit for the first nine months of the year was 91.5 billion yuan, down by 1.9% versus January-to-September last year. The world's largest mobile carrier by subscribersincreased its 3G subscribers by 7.13% 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% of China Unicom Hong Kong's subscribers were on 3G and China Telecom Corp had 52% as 3G users.
China Mobile shares have fallen 5.76 percent year-to-date against a 3.45% overall gain on the Hang Seng Index. China Unicom's have risen 2.74% and China Telecom's are down 3.94% for the same period.
