China Mobile's uncertain future (CHL)

China Mobile (ticker: CHL) has enjoyed many years of sustained growth as a major recipient of China's thirst for mobile phones. But now that domestic growth opportunities are becoming increasingly scarce, China Mobile is exploring new areas. Here is a look at China Mobile's latest developments:

Total subscribers (as of May 31, 2005)

• 220.5 million subscribers.
• 160.0 million prepaid subscribers.
• 60.5 million contract subscribers.

Subscriber additions for the month of May

• 3.4 million new subscribers -- the highest monthly net addition in 2005. 
• 3.3 million new prepaid subscribers.
• 111,000 new contract subscribers.

Analysis of the latest subscriber numbers

• More than 96% of China Mobile's new May subscribers were prepaid users.
• Prepaid users are typically lower paying customers (which should reduce profitability).
• Prepaid users tend to use the phone less, come from less affluent environments and / or are buying second phones.
• Contract customers appear to be steadily declining.
• Average revenue per user (ARPU) declined from $12 last year to $11 in 2005.

Recent developments

• TD-SCDMA. According to the China Daily, recent trials of China's homegrown 3G technology known as TD-SCDMA went "badly". Tests showed phones could be used for voice calls and sending short text messages but were less successful making video calls or downloading video clips. The final report blamed the problems on shortcomings in TD-SCDMA handsets which it said are not yet ready for commercial production. China is developing the 3G technology hoping to both cash in on license fees and avoid paying for foreign technology. Services such as video are a key reason for introducing 3G technology.

• 3G Licenses. Licenses were expected to be issued in 2005. But further delays are expected due to the disappointing TD-SCDMA tests.  Plans to issue 3G licenses are dependent on several factors including the availability, maturity and commercial viability of TD-SCDMA technology and a restructuring of China's telecom industry. The Chinese government is reportedly considering restructuring plans - but has yet to make a final decision.

• Pakistan Telecom. China Mobile failed in its bid for a 26% stake in Pakistan Telecommunication Company (PTCL). Etisalat beat China Mobile and SingTel with a purchase price of $2.5 billion. The price offered by China Mobile was $1.409 billion. According to China Securities analyst Dai Chunrong, Etisalat was much more confident in the Pakistan market than was China Mobile. China Mobile remains cautious about international purchases but is likely to acquire companies in developing countries and neighbouring regions in the foreseeable future.

• China's mobile market. China is the world's largest telecom market with almost 360 million mobile users at the end of May, and a mobile penetration rate of 25.9%.

Extracts from the latest 20-F (published June 13, 2005)

Customer Retention

....As a result of intensified competition, we place great emphasis on customer retention. Our strategy is to attract and retain high-value customers by providing high quality services. We have implemented a “Customer Point Reward Program