China's largest wireless operator, China Mobile, has announced quarterly profits falling 9%. The company reported 755.2mn mobile subscribers for the end of September 2013, retaining its crown as the world's largest mobile operator. However, despite China's telecoms market being more closed off than most, operators still face the same pressures as seen in more open telecoms markets. The threat of over-the-top (OTT) services on operator revenues is noted by operators the world over and BMI sees the pressure remaining on China Mobile in the short term.

China Mobile's results missed analyst expectations, despite revenues of CNY159.9bn, flat from Q213 and up 12.6% y-o-y. The CNY28.4bn reported net profit was a 19.5% decrease from Q213 but more significantly it was the first y-o-y decrease in net profit in four years. The company has been struggling with its less popular 3G network standard, which is only used by China Mobile and therefore has a more limited handset portfolio. This is likely to be resolved with the launch of its 4G network, which has greater compatibility with a wider number of devices, including key devices such asApple's iPhone.

Improvements May Be Cut Short By Third Party Apps

China Mobile Financial Performance (CNYmn)

Source: China Mobile

While lack of access to the latest desirable devices is one problem facing China Mobile, its greater issue is with consumers spending on third-party applications, cutting into the potential revenue it gains from the growing 3G and mobile data subscriber base on its network. Mobile data traffic grew to 132PB in Q312, up 82.4% y-o-y. Revenue from these services is not growing at the same rate, as consumers use OTT apps that only use operator networks but do not provide them with additional revenue.

Although many widely used OTT apps such as WhatsApp and Skype are not as widely used in China, local developers have followed this trend, generating popular apps that bypass network operator messaging and voice services, diverting the revenues from these products away from mobile companies. Despite the Chinese market being more closed off than most telecoms markets, this has not prevented operators from feeling the impact of global telecoms trends.

China Mobile's rival China Unicom has already considered options for boosting its revenues from OTT apps by using partnerships (see 'Revenue Sharing To Combat OTT Threat', July 23), which BMIbelieves is a positive step. The company intends to invest heavily in rolling out its 4G network, which should help it bring in additional revenues as more consumers go online but BMI believes that the revenue sharing plans could bring a more immediate boost to operator performance. However, in the short- to medium-term BMI expects the operator will continue to feel the impact of these third-party players.