Operating mobile telecom networks in the world's most populous and fastest-growing big economy should be a recipe for growth. Indeed, for much of the Chinese industry's short post-privatisation history it has been just that. China Mobile, the world's biggest operator, with 480m subscribers (that is more people than the US and Japan, combined), has quadrupled turnover and earnings per share since 2001.
The current round of quarterly earnings reports, however, suggests carriers may be hanging up on growth. China Mobile lifted first quarter earnings just 5.2 per cent year-on-year, not even matching the rise in gross domestic product. China Telecom saw its earnings slump 27 per cent. Falling profitability seems odd, since Chinese are buying phones by the cartload: average monthly net additions are running at 10.5m this year, according to consultancy BDA, up from 7.4m in 2008.
Profits are down because China Mobile plans to increase handset subsidies and target rural areas – both sure-fire ways of buying customers to the detriment of profitability. India, heading down a similar path, should take note. The country, now adding 15m subscribers a month, overtook China as the fastest growing telecoms market several years ago. Lo and behold, Bharti Airtel, India's biggest mobile phone company, reported a deceleration in first quarter net earnings growth on Wednesday to 21 per cent, compared with 26 per cent for the full year.