China Mobile Is Winning the Race

Formula One champion Kimi Raikkonnen wasn't the only one whizzing past his competitors in Shanghai recently. In its third-quarter earnings release, China Mobile (NYSE: CHL) continued to race far ahead of sole competitor China Unicom (NYSE: CHU).

China Mobile's high-octane 21% revenue growth for the quarter left China Unicom's 6% (for the quarter and the year to date) in the dust. A look under the hood tells us why -- China Mobile captured 80% of all new mobile users during the period, adding to its 68% share at the beginning of 2007. And the company has cornered 80% of the market's mobile revenue to boot.

Supercharged, profitable growth
This near-monopolistic combination of share and revenue performance was powered by a souped-up marketing engine. It drove the addition of more than 17 million new users, as well as boosting those customers' usage volume.

Naturally, such efficient marketing produced even faster growth in after-tax profits -- 30% for the quarter and 38% over the first nine months of 2007. Even after rebounding from a barely profitable second quarter, China Unicom remains far behind with its 22% profit growth so far this year.

As a result, China Mobile's after-tax profit margin of 24% is now double that of China Unicom. That should reassure anyone who thinks China Mobile's strategy of courting cost-conscious prepaid users means giving priority to market share over profitability.

Ready for the next race?
China Mobile's short-term success is almost a given now, considering how it's blown China Unicom off the track. But there may be new challenges around the corner. China's 3G licensing plans could shake up the market -- or lead to a fiasco similar to what happened in Europe.

Eventually, when market penetration growth starts slowing, China Mobile will have to change gears to protect its predominantly prepaid user base from much more intense competition. But judging by how it has used value-added services such as "Color Rings" to drive growth, it looks like China Mobile should have the pole position in the race for China's mobile market.

 

© 2007 Universal Press Syndicate.