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China Mobile Drops to 23-Month Low on Unexpected Spending

Updated:2011/3/17 17:13

China Mobile Ltd., the world’s biggest wireless carrier by users, fell to the lowest in 23 months in Hong Kong trading after the company unexpectedly said it will boost capital spending 6.5 percent this year.

China Mobile fell 2.7 percent to HK$69.15 at 10:12 a.m. local time. Earlier the shares fell as much as 3.6 percent to HK$68.50, the lowest intraday price since April 30, 2009.

China Mobile said yesterday it would boost capital spending on its networks to 132.4 billion yuan ($20.1 billion) this year, from 124.3 billion yuan in 2010, to expand its ability to deliver data to mobile Web users downloading music, video and games on their phones. China Mobile had been expected to reduce spending from the high levels of the past two years, when it was setting up its third-generation network, according to analysts including Colin McCallum from Credit Suisse Group AG.

“In a major change, China Mobile guided for capex to increase,” Hong Kong-based McCallum wrote in a report yesterday after the earnings were released. “Management therefore appears keen to use China Mobile’s balance-sheet power to invest aggressively and maintain its service and network quality advantages, in order to protect its dominant position amongst medium and high-end customers in advance of the rollout of 4G.”

Other analysts, including Michael Meng of BOCI Research Ltd., had also expected the Beijing-based company to cut spending from last year’s level. Meng had forecast capital spending at China Mobile would drop to 118 billion yuan this year in a March 9 report. Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co., said yesterday he’d expected the 2011 expenditure at 98 billion yuan.

Spending Guidance

The capital spending guidance “was a negative coming out of the result,” Lisa Soh, a Hong Kong-based analyst at Macquarie Group Ltd., which rates the stock “outperform”, said in an e-mail yesterday.

Soh said she was surprised by the company’s projection, which was 35 percent more than the 98 billion yuan she estimated.

“To expand our leading position and further develop high value-added services, we will increase our capital spending this year,” China Mobile Chairman Wang Jianzhou said at a press conference in Hong Kong yesterday. “The value-added data business will be a significant source of future revenue growth for our company.”

Capital spending will remain above last year’s level in each of the next two years, Wang said. He projected spending of 130.4 billion yuan next year, and 125.5 billion yuan in 2013.

Data Boost

Data services helped boost net income 3.7 percent to 32.4 billion yuan in the fourth quarter ended Dec. 31, according to figures derived from full-year earnings reported by the company yesterday. Profit was expected to be 31.8 billion yuan, according to the average of five analyst estimates compiled by Bloomberg News. Fourth-quarter sales rose 6 percent to 132.6 billion yuan.

China Mobile had a total of 584 million mobile-phone subscribers at the end of last year, including 20.7 million customers for the high-speed, third-generation service that smartphones use to surf the Web, the company said in February.

That compares with China Unicom’s 311.3 million total subscribers and 14.1 million users of its 3G service. China Telecom was in third place with 90.5 million subscribers.

China Mobile has 35 million registered customers for its mobile applications offerings, who can select from 50,000 applications to download, the carrier said. By the end of last year, the site had recorded 110 million application downloads, according to a company statement.

4G Trial

Wang aims to keep China Mobile’s lead with heavy-data users by rolling out the country’s first fourth-generation network. The company in December received approval from the Ministry of Industry and Information Technology to begin a trial of its 4G TD-LTE network, and this month it added Beijing to the original six cities in the program: Shanghai, Hangzhou, Nanjing, Guangzhou, Shenzhen and Xiamen.

The trials will primarily be focused on high-speed data cards for notebook computers and won’t promote many new handsets for the system, Chief Executive Officer Li Yue said yesterday.

The trials will include network equipment from both Chinese and foreign suppliers, Li said. Chinese suppliers may include Huawei Technologies Co. and ZTE Corp. while overseas companies may include Ericsson AB, Nokia Siemens Networks and Alcatel- Lucent SA, he said.

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