The chairman of China Mobile is facing up to new competitive threats and major technology challenges.
The Chinese government embarked in May on far-reaching reform of the country’s state-controlled telecoms companies by increasing the number of large mobile phone operators from two to three.
Until last year, China Mobile was competing with China Unicom, but it now has to contend with China Telecom as well.
Still, as the world’s largest mobile operator by market capitalisation and customer numbers, China Mobile is starting from a position of strength. With 463.9m customers, the Hong Kong-listed company has an estimated 74% share of the Chinese mobile market.
In an interview with the Financial Times,Wang Jianzhou says that competition could erode China Mobile’s market share and its profit margin at the level of earnings before interest, tax, depreciation and amortization.
‘I cannot say we can keep the same Ebitda margin with fierce competition, but we can say we try to keep a good Ebitda margin,’ he said.
The margin was 53%t over the nine months to September 30, which is markedly higher than some western mobile operators, partly because China Mobile only provides a limited number of its customers with subsidized handsets. These subsidies are a major expense for western operators but result in their customers often getting free or very cheap handsets.
China Mobile has a ‘very good relationship’ with UK-based Vodafone, according to Wang Jianzhou.The chairman of China Mobile holds meetings twice a year with Vittorio Colao, chief executive of Vodafone.
China Mobile, the world’s largest mobile phone operator by customer numbers, and Vodafone, the biggest by revenue, collaborate on the development of wireless technology, among other things.
Vodafone has a 3% stake in Hong Kong-listed China Mobile, and a seat on the company’s board.
With Verizon Wireless, the largest US mobile operator, China Mobile and Vodafone are working on a fourth-generation mobile technology called LTE, which should enable faster web surfing on mobiles. It also could lead to mobiles that function anywhere.
Wang Jianzhou seeks to reassure investors by saying China Mobile will not pursue customer growth by trying to poach subscribers off rivals through a price war.
‘Many investors were afraid of the price competition after the new situation of three competitors,’ he says. ‘We will not use price as the strategy to attract new subscribers.’
Instead, China Mobile is focusing on signing up customers in rural areas, where only 30% of people own mobile phones.
Some industry analysts think the rural strategy is already having a negative impact on the company in the form of lower customer revenue. Average monthly revenue per customer fell from Rmb89 ($13) in the first three quarters of 2007 to RMB83 in the same period last year.
Moreover, analysts think the economic downturn is also taking its toll. China Mobile signed up 6.7m new customers in January, down 6% on the previous month.
Analysts also have concerns about China Mobile’s position as it ramps up services based on third-generation mobile technology, such as video phone calls and web surfing.
China Mobile is using a largely unproven 3G technology called TD-SCDMA. By contrast, China Unicom and China Telecom are using 3G technologies that have been widely used in western Europe and the US.
China Mobile will have fewer 3G mobile customers than its rivals because of the immaturity of the TD-SCDMA technology, according to BDA, an advisory and research firm. BDA estimates China Mobile will have 49.5m 3Gcustomers by 2013, compared with 142m at China Unicom and 55.7m at China Telecom.
Mr Wang says that China Mobile has resolved some TD-SCDMA problems relating to the company’s 3G network infrastructure.
However, he admits that China Mobile needs better handsets following trials last year that highlighted significant shortcomings .
China Mobile also needs a bigger range of mobiles. Last year its customers could choose from about 40 TD-SCDMA handsets. Given that they are using mature 3G technologies, China Unicom and China Telecom should be able to offer their customers many more handsets.
Financial TImes reports that some analysts fear that China Mobile’s earnings could get crimped as the company promotes its TD-SCDMA mobiles through subsidies that will reduce the price paid by the company’s customers.
Without subsidies, TD-SCDMA handsets are unlikely to become a mass market phenomenon.
China Mobile spent an estimated RMB 8 billion on handset subsidies last year, but analysts expect this figure to rise in 2009.
Mr Wang says that China Mobile only provides handset subsidies to its most valuable customers.
‘For the general market, we don’t give subsidies,’ he adds.
Meanwhile, the China Mobile chairman says the company still has ambitions for international expansion, although no deals appear imminent.
Mr Wang says: ‘We will continue to be focused on the domestic market. But we will step up our international expansion strategy we are very patient to try and find some new opportunities.’