China Mobile and China Unicom both reported on Monday declining profits for the first three quarters of the year as the country’s race to roll out 5G commercial networks takes its toll.

Why it matters: Costs related to 5G network construction are pressuring profits for China’s telecommunications companies amid flattening revenues as a result of market saturation in the world’s largest mobile market.

  • Intensifying competition and pressure from Beijing to lower data plan costs for domestic mobile users are adding to telecom companies’ woes.
  • The combined subscriber numbers of China’s three major mobile operators, which also include China Telecom, have exceeded the country’s total population at 1.6 billion in the first half of the year.
  • The trio is racing to roll out 5G services after receiving commercial licenses in June.

Details: China Mobile, the world’s largest mobile operator by subscriber base, posted revenue of RMB 566.7 billion (around $80 billion) in the first nine months of the year, down 0.2% compared with the same period last year. Its revenues from telecommunication services in the same time period were RMB 513 billion, down 1% year on year.

  • China Mobile has seen its profits decline beginning this year, with third-quarter profits declining 12.6% year on year compared with single-digit growth figures in 2018.
  • Profits for the first three quarters of 2019 dropped 13.9% year on year to RMB 81.8 billion, which company chairman Yang Jie said in a statement was due to slumping revenue and increased spending on the transition from the current 4G networks to 5G.
  • China Unicom meanwhile earned RMB 198.5 billion in revenue during the first three quarters of the year, weakening 0.7% year on year while revenues from its telecommunication services fell 6.1% year on year to RMB 117.7 billion.
  • Profit growth for China Unicom declined much more sharply, decelerating to 2% year on year in Q3 from 74.9% year on year in the same period a year ago.
  • China Unicom attributed the decline to market saturation, fierce competition, and demands from the government to reduce consumer subscription costs. The company saw its revenue increase by 11.9% year on year to reach RMB 9.8 billion in the first three quarters.

Context: The three state-owned carriers are cautious about their 5G network-related expenditures amid a slump in revenue growth even though the Chinese government is calling for a quick rollout of the technology.

  • China Unicom said last month that it would partner with rival China Telecom on building a 5G network to serve their subscribers in China.
  • China Telecom said it would invest around RMB 9 billion in the construction of 5G networks this year, while China Unicom announced a planned investment of RMB 8 billion.
  • China Mobile said in August that it would not increase its 5G budget further this year, which is RMB 24 billion.

Writing about semiconductors and telecommunications.

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