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Beijing - China Mobile missed expectations on Monday with a nearly 9% drop in third-quarter net profit as social messaging applications ate into the company's traditional revenue streams.
The applications send messages using a subscriber's data plan, thus depriving telecom operators of the ability to charge for SMS messages.
Third-quarter net profit fell to 28.37bn yuan ($4.65bn) from 31.1bn yuan in the same period last year, below analyst estimates of 30.72bn yuan.
The company blamed its "severe difficulties and challenges" on a tougher competitive environment and also blamed so-called "Over The Top (OTT) products" like Tencent Holdings' WeChat social messaging app and those from other mobile carriers.
OTT products like WeChat, which has 236 million active users, are disrupting the traditional business model of network carriers as smartphone penetration rapidly increases. China currently has more than 460 million mobile Internet users, more than 370 million of whom are on 3G contracts.
China Mobile is betting its future growth on rolling out an expanded 4G network to reinvigorate its business after its slow, domestically-developed 3G standard compared unfavourably to faster offerings from China Unicom Hong Kong and China Telecom Corp.
The company said in March it is investing 41.7bn yuan ($6.84bn) to upgrade its homegrown 4G network, the licenses for which China's government is expected to give out by the end of the year along with those for the other 4G standards used by China Unicom Hong Kong and China Telecom Corp.
China Mobile is also expected to soon reach a deal with Apple Inc to distribute the new iPhone 5S and 5C handsets on its 4G network. This could help attract China Mobile customers into upgrading to 4G, and also provide a boost for Apple as it gets access to 750 million of China's 1.2 billion mobile subscribers.
3G subscribers increase
China Mobile's net profit for the first nine months of the year was 91.5bn yuan, down by 1.9% versus January-to-September last year.
China Mobile, the world's largest mobile carrier by subscribers, increased its 3G subscribers by 7.13% from September to August, but it has struggled to attract 3G users, who only accounting for roughly one-fifth of its total subscribers.
In August 40% of China Unicom Hong Kong's subscribers were on 3G and China Telecom Corp had 52% as 3G users.
The firm's January-to-September average revenue per user (ARPU), a standard industry measure of performance, fell to 66 yuan from 67 yuan a year earlier.
China Mobile shares have fallen 5.76% year-to-date against a 3.45% overall gain on the Hang Seng Index . China Unicom's have risen 2.74% and China Telecom's are down 3.94% for the same period.
China Mobile shares closed up 0.53% on Monday, edging out the Hang Seng Index's gain of 0.42%.
