China Mobile (CHL) Success Likely To Be Short Lived

China Mobile (CHL) announced extraordinary results for the first half and it is not likely to repeat them in the future.

CHL’s 54.8 billion yuan ($8 billion) in net profit in January-June compared with 37.9 billion yuan in the first half of 2007. Revenue rose 18% to $28.7 billion.

Several things stand in the way of another remarkable performance.

First, the economy in China is showing signs of slowing. GDP is now running at about 10%, below the rate of the last five years. Inflation has stepped up sharply. For some essentials like food, price increases are as high as 15%. The amount of discretionary income left for handsets is likely to become more modest.

China does not have a nationwide 3G network, so most of the advantages of fast broadband as not available at all. According to AP, "the company’s future prospects will depend on government plans to restructure China’s telecoms market and to introduce a homegrown third-generation, or 3G, mobile phone standard."

Finally, China Mobile has 415 million subscribers in a country with just over 1.3 billion people Total cellular accounts handled by the company and its competition sum 590 million. Many rural areas do not have good enough reception to be ideal markets for wireless services. In other words, as China Mobile’s market penetration grows.

Douglas A. McIntyre