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Telecommunication

China Mobile seeks new growth drivers alongside 5G rollout

Company cuts dividend after first-half profit decline due to competition, tariff cuts

China Mobile's revenue and profits have been under pressure over the past few quarters because of a saturating market for fourth-generation internet services. (Photo by Takaki Kashiwabara)

HONG KONG (Nikkei Markets) -- China Mobile, the world's largest mobile services provider, is pursuing new growth drivers to circumvent the pressure on its traditional revenue streams as it gears up for a commercial rollout of fifth-generation internet services.

The state-owned company's revenue and profits have been under pressure over the past few quarters because of a saturating market for fourth-generation internet services users and government demands that telecom companies reduce tariffs while enhancing speeds. To boost data traffic, China Mobile has been developing products that combine content and applications, and setting up digital platforms that help connect devices in households.

Company officials said at a news conference on Thursday that they aim to add 45 million 4G subscribers this year, alongside an additional 25 million broadband users and 300 million internet-of-things connections. The company, which earns almost all its business income in China at present, is targeting international operations to contribute around 10% of revenue by 2023, they said.

"As the traditional communications market is becoming almost saturated, the upside of data traffic is rapidly diminishing and it is increasingly difficult for operators to boost operating results by relying on traditional growth drivers alone," Chairman Yang Jie said in a statement.

Officials at Thursday's briefing said China Mobile is also aiming to contain costs while rolling out 5G services by sharing resources and technology used in its 4G networks.

China Mobile was among four Chinese companies that were in June given the go-ahead for the commercial deployment of 5G services, months ahead of expectations. The 5G networks are expected to bring internet speeds up to 100 times faster than those on fourth-generation networks.

Chairman Yang said the company will leverage the base station sites and transmission facilities used for 4G services to build out its 5G network cost-effectively. He also reiterated the company's plan to set up more than 50,000 5G base stations in China and launch 5G commercial services in more than 50 cities this year.

The company, which spent around 85 billion yuan ($12.1 billion) on capital expenditure in the first half of 2019, is aiming to keep full year capex below 166 billion yuan. Of that figure, about 24 billion yuan has been budgeted for 5G infrastructure and base stations.

Chairman Yang said the years between 2020 and 2022 will be the "peak period" for China Mobile's investments in 5G rollout, although the increase in capital expenditure will not be much. It is also exploring the possibility of a tie up for 5G services with China Broadcasting Network, one of the four companies which won the licenses in June.

Brokerage Daiwa Capital Markets expects China Mobile to launch 5G services as early as September.

China's race to usher in the 5G era comes against the backdrop of an escalating trade dispute with Washington, after the U.S. blacklisted Chinese telecom gear maker Huawei Technologies on charges of espionage. Huawei has denied the allegations.

An early commercial rollout is expected to spur investments in the telecom sector, supporting network equipment manufacturers such as Huawei and smaller peer ZTE.

China Mobile has in the past said it will continue to work with Huawei and maintain a "transparent approach" in selecting its suppliers. According to a June report in the South China Morning Post newspaper, China Mobile has awarded half of its 5G network contracts to Huawei.

Earlier on Thursday, China Mobile reported a 15% drop in profit during the first six months of the year to 56.06 billion yuan ($7.85 billion). Operating revenue fell 0.6% to 389.43 billion yuan, while telecom services revenue, which accounted for about 90% of operating revenue, slipped 1.3%.

Starting from the second half, the company will develop more products to increase "stickiness" with users, Chief Financial Officer Dong Xin told reporters on Thursday. "We will see an expansion in our revenue and a contraction in our costs."

China Mobile cut its interim dividend to HK$1.527 a share, from HK$1.826 last year. The company said it will "strive to maintain a stable dividend" for the full year, after giving due consideration to its performance in 2019.

Shares of China Mobile slipped 0.2% to HK$63.05 in Hong Kong, while the city's benchmark Hang Seng Index added 0.5%.

-- Benny Kung & Dhanya Ann Thoppil

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