China Mobile's profits fall as competition increases

China has one of the largest mobile phone and internet markets in the world

Shares in China Mobile, the world's biggest phone carrier by subscribers, have fallen more than 5% after second-quarter profits disappointed investors.

Net profit fell to 34.40bn yuan ($5.4bn; £3.4bn) from 34.42bn yuan a year earlier, although revenue rose by 5.4% to 139.1bn yuan.

Shares fell 5.3% to HK$86.65 on the news as markets had expected a rise.

The firm blamed fierce competition and has also been hit by not having a deal to sell Apple's iPhone.

Rivals have lured new subscribers with iPhones. However, China Mobile's home-grown 3G technology has thwarted a deal with Apple which does not support the technology in its iPhones.

"We faced a number of severe challenges including the increase in mobile penetration, intensified competition, as well as the impact of new technologies and services that are replacing traditional communications services," said company chairman Xi Guohua in a statement.

Although China Mobile is the leading carrier in China, its rivals have a much bigger proportion of 3G users among their subscribers. About 25% of China Unicom's subscribers have 3G contracts, while at China Telecom it is 35%. At China Mobile, 10% of its total customer base of 683 million are 3G subscribers.

In order to attract new customers, chief financial officer Xue Taohai said the group had raised handset subsidies for this year to 26bn yuan from an initial 21bn yuan. He said the carrier spent 12bn yuan in the first half of the year.

Chris Hsu, China product manager at Allianz Global Investors Taiwan, said a price war in the Chinese telecom market was inevitable.

"Carrying iPhones usually incur costs for Chinese carriers, but the contracts and services bundled with these iPhones will slowly offset such costs," he added.

Weibo boost

Meanwhile internet company Sina Corp reported a surprise rise in second-quarter net profits and forecast growth thanks to the popularity of its microblogging platform Weibo, the Chinese equivalent of Twitter.

Net profit rose to $33.2m during the quarter from $10m a year earlier, it said, although the figure was boosted by a one-off sale of a stake in a real estate company.

The company - which depends on online advertising for revenue - was upbeat over Weibo's prospects. The microblogging site, which has 368m registered users, contributed about 10% to total advertising revenue.

"We expect the advertising revenue contribution from Weibo to accelerate in the second half of the year. That will help our advertising growth rate as compared to the market," said Sina's chief executive Charles Chao.

Tencent, another internet group, reported a 32% rise in net profit in the same quarter, bucking a broader economic slowdown in the country.

The Hong Kong-listed company, which owns instant messaging service QQ and the web portal QQ.com, said net income rose to 3.1bn yuan compared with 2.35bn yuan a year earlier.

The group also owns a popular online gaming platform and bought a majority stake in US online game developer Riot Games last year.

China is the world's biggest internet market with over 500 million web users, according to official figures.