4G boom falls short of off-setting declining voice services

20 Mar 2015

China Mobile, the largest cellco in the world has booked annual turnover of CNY641.45 billion (USD104.51 billion) for the full year ended 31 December 2014, an increase of 1.8% year-on-year, as non-service revenue of CNY59.63 billion (+51.2% y-o-y) offset the impact of a CNY46.73 billion drop in voice service revenue, which fell to CNY308.96 billion. Rising operating expenses saw EBITDA fall by 2.1% to CNY235.26 billion, with an EBITDA margin of 36.7%, compared to 38.2% in 2013. Net profit for the year was CNY109.41 billion, down by 10.2% year-on-year.

China Mobile’s focus throughout 2014 was on the rollout and development of its 4G Time Division Long Term Evoluition (TD-LTE) service and the cellco dedicated CNY80.6 billion of its CAPEX for the year on the deployment, with plans to invest a further CNY72.2 billion in 2015 on the technology. Mobile’s 4G network consisted of more than 720,000 base stations at the end of 2014 and served 90.06 million subscribers, up from 40.95 million in Q3 2014 and 13.94 million in Q2. In addition to the network rollout, the operator has altered its strategy regarding devices, significantly lowering subsidies for handsets. This was combined with an effort to drive down device costs, and the cellco notes that it now offers in excess of 600 models of 4G-compatible handset, with an average price of CNY1,600, although prices start as low as CNY400. Mobile’s heavy marketing of 4G services has seen mobile data traffic increase by 115.1% y-o-y, although turnover from mobile data grew by only 42.9%, to CNY150.57 billion. 4G traffic now represents 44% of the cellco’s mobile data traffic, whilst 3G and 2G make up 22% and 34% respectively.

Somewhat worryingly for China Mobile, voice, SMS and MMS revenues all took a substantial hit in 2014, with voice services generating 13.1% less income than 2013 whilst SMS and MMS turnover dropped by 15.8% to CNY34.78 billion. The cellco notes, however, that the decline in voice service revenue is anticipated by its long term plan, which expects turnover to increasingly come from data traffic before migrating to the cellco’s nascent digital services.

China, China Mobile