Farmers boost CMHK results

18 Aug 2004

China Mobile Hong Kong (CMHK), the world’s largest mobile operator in terms of subscribers, said that its first half profit rose in line with market expectations as it turned to the rural sector for growth. The cellco signed up 17 million new customers in the six month period, by offering cheaper services to the largely untapped rural market. The country’s 900 million farmers and migrant workers cannot afford CMHK’s standard tariffs so the operator has targeted them with its new, reduced rate services under the Shenzhouxing brand.

Net income for the six months to 30 June 2004 rose to CNY18.82 billion (USD2.3 billion), up 7.8% on the CNY17.46 billion reported twelve months earlier, prompting the operator to declare an interim dividend of 20 Hong Kong cents a share. CMHK said that capital expenditure this year will exceed its original forecast of USD5.8 billion by 15%. However, analysts have warned that CMHK’s phenomenal growth cannot continue at such a pace for much longer, warning that the cellco and its rivals will have to start looking towards new products if they are to keep building revenues.

CMHK was incorporated in Hong Kong in September 1997 under its previous name China Telecom (Hong Kong). The name change occurred in June 2000 to mirror the alterations in the company’s ownership structure resulting from the splitting up of national PTO China Telecom into separate operating divisions. Whilst CMHK’s revenues, profits and subscriber numbers have all enjoyed impressive growth in recent years, the company now faces increasing competition from fellow operator China Unicom and also from the Xiao Ling Tong limited mobility services offered by China’s fixed line operators. The Chinese cellular operators objected to the Xiao Ling Tong service on the grounds that the fixed line operators are unfairly poaching customers. This, in conjunction with CMHK having to rely solely on organic growth now it has operations throughout the country (and also the fact that the newly purchased networks being in areas of relatively low prosperity) reinforce analysts’ opinions that the explosive growth of previous years may be coming to an end.

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