China Mobile, China Telecom and China Unicom, the nation's three telecom giants, are no longer seen as "the most profitable companies in Asia", as China sets about restructuring its telecoms industry in the face of worldwide financial gloom.

The three companies recently released their annual reports, and the figures suggest they are entering a difficult period compared with previous years.

Revenue growth hits record low

China Mobile, which has been developing rapidly in recent years, saw a fall in revenue growth in 2008. The 15.5 percent increase was the lowest in the past five years. The company's EBITDA (earnings before interest, taxes, depreciation, and amortization) rose by 11.6 percent, far lower than the 21.6 percent in 2007, 19.7 percent in 2006 and 24.8 percent in 2005.

Both China Telecom and China Unicom saw significant falls in revenue and net profit compared to 2007. Last year, China Unicom earned 151.88 billion yuan (US$22.22 billion), a year-on-year drop of 0.4 percent, excluding lump-sum installation fees and other one-off factors like the shrinking of its PHS (personal handy-phone system) service. China Telecom reported a net profit of 20.06 billion yuan (US$2.93 billion), down 12.8 percent compared with the previous year.

Voice service fees falling year on year

Profit forecasts for China Mobile, China Telecom and China Unicom for the coming years are gloomy. One reason lies in the steep decline in revenue from voice service fees.

Last year, the fee per-minute for China Mobile's voice service was 0.12 yuan, down 66 percent as against the 0.36 yuan in 2003. The operator cut the price in an attempt to attract more customers. However, instead of seeing a rise in MOU (minutes of usage), the company saw a significant fall in its ARPU (average revenue per user).

As for China Unicom, the decrease in its voice service fees outpaced growth of customer numbers, and due to the inflexibility of its pricing structure, the company's MOU went down by 1.5 percent to 246.4 minutes. These two factors combined to result in a shrinking of voice service income.

Massive investment in 3G network

Another reason for the sluggish growth of the Chinese telecom giants is the ongoing construction of China's 3G network.

In 2008, the expenditure of the three telecom operators shot up by more than 50 percent. Specifically, the capital expenditure of China Mobile rose to 136.3 billion yuan (US$19.94 last year, compared to 87 billion yuan (US$12.73 billion) in 2007, 88.3 billion yuan (US$12.92 billion) in 2006 and 71.5 billion yuan (US$10.46 billion) in 2005. China Unicom increased its capital expenditure by 53.3 percent in 2008 to 70.4 billion yuan (US$10.3 billion).

The construction of the 3G network is mainly being funded by the parent companies of China Mobile, China Telecom and China Unicom. In the future, however, the listed companies under the three conglomerates are also expected to make huge investments. In the initial period of 3G construction, the enormous capital expenditure, extra depreciation costs and heavy expenditure on business promotion will lead to considerable losses in the 3G business, and offset income growth from the 2G business. The good old days have gone, and China is highly likely to suffer difficulties in the telecoms sector for some years to come.

(China.org.cn by Chen Xia, April 3, 2009)