The company said last Friday that it planned to write off the entire 1.53 billion yuan (US$184.9 million) remaining value of its analog equipment in its 2000 earnings. Analysts had expected the company to take a provision of no more than 800 million yuan.
The decision came after the company received government approval to replace an old analog wireless spectrum with a new digital one. China Mobile wrote off of 8.2 billion yuan in 1999.
"The bigger provision will definitely hit earnings," said Joe Locke, an analyst with ABN Amro Asia Ltd. The decline in profit will be less than the increase in the charge, partly because of tax savings from the bigger write-off, he said.
The company is scheduled to announce its results today at 1 pm, Hong Kong time.
Before the adjustment, analysts had forecast China Mobile to report net income jumped to 19 billion yuan from 4.80 billion yuan in 1999, the median of a Bloomberg survey of nine analysts. Estimates ranged from 15.8 billion yuan to 21.6 billion yuan. In the first half, the company earned 8.7 billion yuan.
"The expansion in profit is due to the full-year contribution from three provinces that bought in 1999 and profit contribution from seven networks they bought last year," said Wallace Cheung, an analyst with DBS Securities in Hong Kong.
Networks
In October 1999, China Mobile bought three provincial networks from government-owned parent China Mobile Communications Corp. A year later, it sold US$7.6 billion in stocks and bonds to buy seven more networks. These purchases brought to 13 the number of networks under the listed company's control.
The company said it had 45.1 million subscribers at the end of last year, compared with 15.6 million a year ago.
China Mobile and its parent, which had 21 million subscribers in 18 provinces at year-ends, control three-quarters China's wireless market. That surpasses rival China Unicom Ltd and its parent, China United Telecommunications. China Unicom last week reported 2000 profit jumped fourfold to 3.2 billion yuan.
China Mobile will also have to write down an estimated 240 billion yuan (US$29 billion) goodwill on its network acquisitions last year. The writedown comes out of reserves, reducing the company's asset size, not its profit.
Sales
Analysts polled by Bloomberg estimate China Mobile's 2000 sales jumped 68 percent to 64.7 billion yuan, compared with China Unicom's reported 36 percent increase.
China's phone industry is protected by regulation, including a ban on foreign competition. Still, as more people buy phones, both companies have become more aggressive in securing customers, at the expense sales per user.
ING Barings analyst Lynda Lau expects China Mobile's monthly sales per customer last year fell 29 percent to 226 yuan, compared with Unicom's 25 percent decline.
Last year, China Mobile introduced prepaid calling cards, which allow low-use customers to pay by the minute without a monthly charge. By the end of November, those users comprised about a fifth of all subscribers.
"One of the concerns among investors is China Mobile's prepaid ARPU (average revenue per user), which the company hasn't disclosed," said Lau. She said she expects monthly sales per prepaid customer to be as little as 111 yuan.
Worries about China Mobile sales contributed to a 52 percent slump in its share price in the last 12 months. The second-biggest stock in Hong Kong by market capitalization, China Mobile now accounts for 20 percent of the benchmark Hang Seng Index.
Shares slump
Declining equipment costs amid a slump in the telecommunications industry is expected to save the company money.
Unicom said it saved US$2.2 billion in capital costs, which translated into lower depreciation costs and higher interest income.
At the start of the year, China Mobile said it would have US$3.4 billion in capital expenditure in 2000. It spent about US$900 million in the first half.
"There maybe some upside from capex savings, but even with the same level of reduction as Unicom, the impact will be less significant because China Mobile has a much higher earnings base," said DBS's Cheung.
Today, shares in China Mobile fell 2.4 percent to HK$32.20.
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