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China Mobile growth hopes pinned on iPhone tie up

China Mobile growth hopes pinned on iPhone tie-up

By Reuters | Updated: 5 June 2012 16:55 IST

Highlights

China Mobile, the world's biggest carrier by number of subscribers, is hoping for the best by landing an iPhone contract.

China Mobile, the world's biggest carrier by number of subscribers, is set to post its slowest quarterly growth in almost two years on Thursday due to weak user rates, though the pace might pick up later this year if it attracts higher-end users with a network upgrade and lands an iPhone contract.

The carrier, which has a market value of about $220 billion and competes with smaller rivals China Unicom and China Telecom Corp, has been trying to boost the average rates users pay in the world's largest mobile phone market, where barely 15 percent of subscribers are 3G users.

The efforts have been hampered by its adoption of a homegrown mobile phone technology, the TD-SCDMA standard, which is inferior to the internationally accepted technologies used by its main competitors.

But China Mobile hopes to be the first to adopt the superior 4G technology TD-LTE commercially in the country either later this year or next year.

Those hopes have partly been responsible for a flurry of upgrades to China Mobile's stock ratings by brokerages, including Credit Suisse, HSBC and Goldman Sachs, over the past week, and helped push its shares up 8 percent over two days to 2-1/2-year highs.

"The company can also regain its growth momentum given the potential technology advantages of TD-LTE versus TD-SCDMA as well as a headstart versus its competition," Tommy Mok, an analyst at RBS, said in a report ahead of the earnings release.

China Mobile is expected to report a net profit of 33.2 billion yuan in the October-December quarter, based on Reuters calculation using Thomson Reuters I/B/E/S forecasts and previously announced company data.

That would represent a 2.5 percent rise from the same period a year earlier, marking the slowest pace since the first quarter of 2010 when the growth was 1.1 percent.

For the 2011 full year, China Mobile's net profit is expected to have risen 4.6 percent to 125.2 billion yuan, according to a Thomson Reuters I/B/E/S poll of 30 analysts.

iPhone deal awaited
China now has 987.6 million users, which number is set to hit 1 billion later this year, with handset makers clamouring for more share as subscribers become more sophisticated.

However, China's carriers have been suffering from falling average rate per user (ARPU) as they subsidise handsets from phone makers such as Samsung Electronics, HTC Corp and ZTE Corp to attract high-end users.

China Mobile, which has 665 million users -- more than double the U.S. population, is now the only carrier in the country without an iPhone contract with Apple Inc .

Analysts are currently mixed on when Apple and China Mobile would seal a deal, with some expecting it to happen as early as the second half of this year.

"The earliest China Mobile can begin selling the iPhone will be end-2012," Citigroup said in a report.

HSBC pinned its upgrade partly on the possibility of the next iPhone 5 supporting China Mobile's TD-SCDMA, which meant that there was no need to wait for the carrier to launch TD-LTE before carrying iPhones officially.

But not everyone is expecting the Apple link to materialise soon.

Chinese brokerage CICC is less optimistic and assumes that Apple would not support TD-SCDMA. Assuming that China would only give out LTE licenses in 2014, Apple and China Mobile would only able to introduce the iPhone then, it said in a recent report and downgraded its rating on China Mobile to a 'reduce'.

Copyright Thomson Reuters 2012

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Further reading: 3g technology, 4g, apple, china mobile, china telecom group, china unicom, iphone

China Mobile growth hopes pinned on iPhone tie-up

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