China Mobile Mulls Investments In Asia, Africa to Fuel Growth

By LORRAINE LUK

HONG KONG--China Mobile Ltd., the world's biggest mobile operator by subscribers, is looking at acquisition and investment targets in Asia and Africa as profit growth slows at home, its chairman said Friday.

But any expansion through acquisitions would be balanced with continued investments in its home market because there is still huge growth potential in mainland China, Chairman and Chief Executive Wang Jianzhou said in an interview Friday.

China is home to more than 730 million mobile subscribers, with the country's mobile penetration rate at close to 60%. That is still pretty low compared with developed markets like Japan and South Korea where penetration rates are around 100%.

China Mobile is the biggest player, but its profit growth has been slowing because of rising competition after a government mandated restructuring in late 2008 merged China's six telecom operators into three nationwide full-service operators, bringing in China Telecom Corp. into the mobile market. The mobile giant reported Thursday its net profit last year rose just 2.3% to 115.20 billion yuan (US$16.88 billion) from 112.63 billion yuan a year earlier, sharply lower than the 30% growth it saw in 2008.

"Rising competition has already hurt our profitability. The company wants to look for additional growth and opportunities overseas," Mr. Wang said.

His comments suggest China Mobile is taking a more aggressive acquisition approach after the industry restructuring as it seeks to generate further growth. Its only acquisition was in 2006 when it completed the 3.38 billion Hong Kong dollar ($435.5 million) purchase of Hong Kong mobile carrier China Resources Peoples Telephone Co.

China Mobile this month agreed to take a 20% stake in Shanghai Pudong Development Bank Co. for US$5.83 billion as it seeks to expand into mobile payment services. Last year, China Mobile also agreed to invest 17.7 billion New Taiwan dollars (US$557.2 million) in Taiwan's Far EasTone Communications Co. but the plan remains in limbo as the island keeps its phone-services providers off-limits to Chinese investment.

"We are still awaiting approval from the Taiwan government," said Mr. Wang. "We hope the Taiwan government will relax investment rules."

The executive cautioned that despite its hefty cash reserve--last year, the company had US$34 billion in cash--it won't chase "high-priced assets" and that is why it hasn't bid for the African assets of Kuwait's Mobile Telecommunications Co. or for a stake in Nigerian Telecommunications Ltd.

The Nigerian government is auctioning a stake in the telecom operator and China Mobile's rival, China Unicom (Hong Kong) Ltd., has said it would explore the possibility of an equity investment.

"We haven't participated in recent bids for African assets," said the executive, declining to elaborate further.

Analysts say overseas acquisitions would be the only way for China Mobile to boost its earnings growth in the near term as it takes time to generate revenue from value-added and data services.

Goldman Sachs recently raised its price target on China Mobile to HK$90 from HK$86, partly reflecting the anticipated earnings boost from company's planned investment in Shanghai Pudong Development Bank.

Mr. Wang reiterated he expects the deal to boost the company's earnings per share by 2% once completed. The executive also said he sees "great potential" in mobile payment services because China Mobile has more than 500 million subscribers.